UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT 1 TO THE
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FTS Apparel, Inc.
(Name of small business issuer in its charter)
Colorado 2253 84-1416864
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(State or jurisdiction (Primary Standard Industrial I.R.S. Employer
of incorporation or Classification Code Number) Identification
Organization ) No.
1049c Oxford Valley Rd., Levittown, Pa, 19057
Telephone: 215-943-9979
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(Address and telephone number of principal executive offices)
1049c Oxford Valley Rd., Levittown, Pa, 19057
Telephone: 215-943-9979
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(Address of principal place of business or intended principal place of business)
Scott Gallagher
Chief Executive Officer
1049c Oxford Valley Rd., Levittown, Pa, 19057
Telephone: 215-943-9979
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(Name, address and telephone number of agent for service)
Copy to:
Amy M. Trombly
80 Dorcar Road
Newton, MA 02459
(617) 243-0850
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class Proposed Proposed
of . . . . . . . . maximum maximum Amount of
securities to be. . Amount to be offering price per Aggregate registration fee
registered. . . . . registered(1) security(2) offering price
- ------------------- ------------- -------------------- --------------- -----------------
Common stock,
par value $.001
per share . . . . . 5,600,000 $ 0.35 $ 1,848,000 $ 149.00
- ------------------- ------------- -------------------- --------------- -----------------
<FN>
(1) Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the "Act"), this
registration statement shall be deemed to cover additional securities that may be offered or
issued to prevent dilution resulting from stock splits, stock dividends or similar
transactions.
(2) The price of $0.35 per share, which was the average of the high and low prices of the
Registrant's Common Stock, as reported on the Over-The-Counter Bulletin Board on July 16,
2003 is set forth solely for purposes of calculating the registration fee pursuant to Rule
457(c) of the Securities Act of 1933, as amended.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
FTS APPAREL, INC.
OFFERING UP TO 5,600,000 SHARES
OF COMMON STOCK
We have prepared this prospectus to allow a selling stockholder, Dutchess
Private Equities Fund L.P., which currently owns convertible debentures and is
obligated to purchase additional convertible debentures, to sell up to 5,600,000
shares. The debentures convert into common stock at the Dutchess Private Equity
Fund's discretion. Although we received proceeds from the private placement of
the debentures, we will not receive any of the proceeds from the sale of common
stock by the selling stockholder pursuant to this prospectus. All costs
associated with this registration statement will be borne by us.
Our common stock is traded on the Over-The-Counter Bulletin Board under the
trading symbol "FLIP.OB." On September 10, 2003, the last reported sale price
for our common stock on the OTCBB was $0.28 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4
You should rely only on the information provided in this prospectus or any
supplement to this prospectus and information incorporated by reference. We have
not authorized anyone else to provide you with different information. Neither
the delivery of this prospectus nor any distribution of the shares of common
stock pursuant to this prospectus shall, under any circumstances, create any
implication that there has been no change in our affairs since the date of this
prospectus.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. It is a criminal offense to make any
representation to the contrary.
Subject to Completion, The date of this prospectus is September 15, 2003.
TABLE OF CONTENTS
PROSPECTUS SUMMARY 3
RISK FACTORS 4
USE OF PROCEEDS 8
DETERMINATION OF OFFERING PRICE 8
DILUTION 9
SELLING SECURITY HOLDERS 9
PLAN OF DISTRIBUTION 9
LEGAL PROCEEDING 10
DIRECTORS & EXECUTIVE OFFICERS 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 11
DESCRIPTION OF SECURITIES 12
INTEREST OF NAMED EXPERTS AND COUNSEL 13
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES 13
ORGANIZATION WITHIN LAST FIVE YEARS 13
DESCRIPTION OF BUSINESS 13
DESCRIPTION OF PROPERTY 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 17
EXECUTIVE COMPENSATION 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION 19
FINANCIAL STATEMENTS 22
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 23
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this prospectus. Because it is a summary, it does not contain all
of the information you should consider before making an investment decision. You
should read the entire prospectus carefully, including the financial statements
and the notes relating to the financial statements.
The Company
We are engaged in the acquisition and development of a chain of full service
retail wireless stores. Our primary business is the marketing, sale and
activation of cellular and satellite handsets, cellular accessories and other
hard to find wireless items such as Bluetooth-enabled products, Wi-Fi service
and related access equipment for residential or business purposes. Our business
plan calls for each retail wireless location to become a Wi-Fi "Hotspot". Wi-Fi
Hotspots allow retail and business wireless customers to connect to the
Internet through our Wi-Fi network by using a wireless device such as PDAs,
laptops or a cellular phone located within a short distance, approximately
500 feet from each of our wireless locations.
The Offering
In February 2003, we completed a debenture offering with Dutchess Private
Equities Fund, L.P. Pursuant to a Subscription Agreement with Dutchess, we
received $200,000 from the sale of 6% secured convertible debentures. We sold
additional debentures to Dutchess worth $35,000 in April and May, 2003. On July
21, 2003, we amended the debenture agreement to sell an additional $35,000
of debentures to Dutchess. The terms of the debentures provide for payment
by February 14, 2007 with the debentures being convertible into our common
stock at the holder's discretion at any time at the lesser of (i) 80% of
the average of the five lowest closing bid prices during the 15 days prior
to conversion or (ii) 100% of the average of the closing bid prices for the 20
trading days immediately preceding the closing date. Dutchess also agreed
to purchase an additional $130,000 convertible debenture upon effectiveness
of this registration statement. We agreed to register the shares
underlying the debentures.
In August 2002, Dutchess funded us by buying 250,000 shares of restricted stock
for $12,500. As part of the debenture financing described above, Dutchess
agreed to return the 250,000 restricted shares to us to be canceled. We agreed
to convert the $12,500 that we owed to Dutchess into additional convertible
debentures and we issued the convertible debentures in February 2003.
Additionally, we are registering the resale of 600,000 shares that Dutchess
currently owns.
The following chart shows how many shares we may issue upon conversion of the
debentures based on our stock price at the time of conversion. This chart is
for demonstration purposes only and we can not predict with certainty our actual
stock price at the time of conversion.
Assumed Per Share Offering price Shares to be Percentage of
Offering Price discount-80% Issued outstanding shares
after the offering
$.10 .08 5,000,000 22%
$.20 .16 2,500,000 12%
$.30 .24 1,666,666 8%
$.40 .32 1,250,000 6%
$.50 .40 1,000,000 5%
Our business address is 1049C Oxford Valley Rd., Levittown, Pennsylvania
19057. Our telephone number is (215) 943-9979.
Common stock offered Up to 5,600,000 shares. The
actual number of shares will
primarily depend on the
conversion rate of the
debentures.
Use of proceeds We will not receive any
proceeds from the sale by
the selling stockholder of
our common stock.
Symbol for our common stock Our common stock trades on
The OTCBB Market under the
symbol "FLIP.OB"
OUR CAPITAL STRUCTURE AND SHARES ELIGIBLE FOR FUTURE SALE
Shares of common stock outstanding
as of September 10, 2003 17,430,240
Shares of common stock potentially issuable
upon conversion of the debentures including
$130,000 of debentures not yet issued, and any shares
necessary to cover accrued interest on the debentures 5,000,000
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Total 22,430,240
Assumptions
- - No exercise of outstanding warrants to purchase an aggregate of 1,036,000
shares of our common stock at an exercise price of $1.50 per share.
- - No exercise of options outstanding to purchase 598,000 shares of our
common stock at exercises prices ranging from $.81 per share to $2.75 per share.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, other information included in
this prospectus and information in our periodic reports filed with the SEC. If
any of the following risks actually occur, our business, financial condition or
results of operations could be materially and adversely affected and you may
lose some or all of your investment.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We generally use words such as "believe," "may," "could,"
"will," "intend," "expect," "anticipate," "plan," and similar expressions to
identify forward-looking statements. You should not place undue reliance on
these forward-looking statements. Our actual results could differ materially
from those anticipated in the forward-looking statements for many reasons,
including the risks described below and elsewhere in this report. Although we
believe the expectations reflected in the forward-looking statements are
reasonable, they relate only to events as of the date on which the statements
are made, and our future results, levels of activity, performance or
achievements may not meet these expectations. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We do not intend to update any of the
forward-looking statements after the date of this document to conform these
statements to actual results or to changes in our expectations, except as
required by law.
RISKS ABOUT OUR BUSINESS
WE HAD LOSSES SINCE OUR INCEPTION AND EXPECT LOSSES TO CONTINUE IN THE FUTURE.
WE MAY NEVER BECOME PROFITABLE.
We had a net loss of $1,168,154 for the year ended December 31, 2001 and a net
loss of $815,907 for the year ended December 31, 2002. Our future operations may
never become profitable if we are unable to develop our retail wireless
operations. Revenues and profits, if any, will depend upon various factors,
including whether we have sufficient funding to open additional locations,
advertise our products or find additional businesses to operate and/or
acquire. We may not achieve our business objectives and, if we do not
achieve our objectives, we may never become profitable or if we do become
profitable, we may not be able to sustain our profitability.
OUR INDEPENDENT AUDITORS HAVE ISSUED A GOING CONCERN OPINION DUE TO OUR
RECURRING LOSSES AND WORKING CAPITAL SHORTAGES, WHICH MEANS WE MAY NOT BE ABLE
TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.
Our audited financial statements for the fiscal year ended December 31, 2002,
reflect a net loss of $815,907. These conditions raised substantial doubt
about our ability to continue as a going concern if we do not acquire sufficient
additional funding or alternative sources of capital to meet our working capital
needs. If we do not obtain additional funding, we may not be able to continue
operations.
WE ONLY RECENTLY ACQUIRED OUR OPERATING UNIT AND HAVE BEEN SELLING WIRELESS
COMMUNICATIONS AND NETWORKING PRODUCTS AND SERVICES FOR A SHORT PERIOD OF TIME
AND WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS.
We began our retail wireless operations in February 2003 with our acquisition of
selected assets of Simply Cellular, Inc. Since we have just begun operations in
this industry, we may not find commercial acceptance of our products and
services. We have no way of predicting whether our marketing efforts will be
successful in attracting new customers and acquiring market share. We may not be
able to develop products and technologies that will attract customers without
which we cannot operate profitably.
OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFCANTLY IN THE PAST AND WE BELIEVE
THEY WILL FLUCTUATE SIGNIFICANTLY FOR THE FORESEEABLE FUTURE. INVESTORS MAY
PREFER STABLE AND PREDICTIBLE OPERATING RESULTS AND MAY SELL OUR STOCK IF OUR
OPERATING RESULTS CONTINUE TO FLUCTUATE OR DO NOT MEET THEIR EXPECTATIONS FOR
GROWTH. AS A RESULT YOUR INVESTMENT IN OUR STOCK MAY LOSE VALUE.
Our quarterly results of operations have varied in the past and are likely to
continue to vary significantly from quarter to quarter. Our operating expenses
are based on expected future revenues and are relatively fixed in the short
term. If our revenues are lower than expected, our results of operations could
be lower than expected. Additionally, we are unable to forecast our future
revenues with certainty because our business plan contemplates the acquisition
of new enterprises, which may not occur. Many factors can cause our financial
results to fluctuate, some of which are outside of our control.
Quarter-to-quarter comparisons of our operating results may not be meaningful
and you should not rely upon them as an indication of our future
performance. In addition, during certain future periods our operating
results likely will fall below the expectations of public market analysts and
investors. In this event, the market price of our common stock likely
would decline.
WE NEED ADDITIONAL CAPITAL TO GROW OUR BUSINESS AND IF WE DO NOT FIND SUCH
CAPITAL ON ACCEPTABLE TERMS, WE WILL NOT BE ABLE TO FULLY IMPLEMENT OUR BUSINESS
PLAN.
Our independent auditors have issued a going concern opinion that states, in
part, that we must acquire sufficient additional funding or alternative sources
of capital to meet our working capital needs. We believe we must grow our
operations to generate enough revenue to cover our operating and overhead costs.
Therefore, our business plan contemplates the acquisition of new enterprises.
The proceeds from our existing financing arrangement may not be sufficient to
fully implement our business plan. Additionally, we may not be able to generate
sufficient revenues from our existing operations to fund our capital
requirements. Accordingly, we may require additional funds to enable us to
operate profitably. Such financing may not be available on terms acceptable to
us. We currently have no bank borrowings or credit facilities, and we may not
be able to arrange any such debt financing. Additionally, we may not be able to
successfully consummate additional offerings of stock or other securities in
order to meet our future capital requirements. If we cannot raise additional
capital through issuing stock or bank borrowings, we may not be able to sustain
or grow our business.
TO BECOME PROFITABLE AND GROW, WE MUST SUCCESSFULLY INTEGRATE NEW BUSINESSES
INTO OUR COMPANY.
Our success depends upon our ability to identify and acquire undervalued
businesses. Although we have identified certain companies available for
potential acquisition that are undervalued and might offer attractive business
opportunities, we may not be able to negotiate profitable acquisitions.
If we do make business acquisitions, we must continue to implement and improve
our operational, financial and management information systems. We must also
hire, train and retain additional qualified personnel, continue to expand and
upgrade core technologies, and effectively manage our relationships with
customers, suppliers and other third parties. If we expand as anticipated,
expansion could place a significant strain on our current services and support
operations, sales and administrative personnel, capital resources, and
other company resources. If we fail to effectively manage our growth, our
expenses may increase which could lower our earnings or prevent us from becoming
profitable. Failure to effectively manage our growth could also result in us
failing to generate sufficient revenues to become profitable.
WE DEPEND ON MR. SCOTT GALLAGHER, OUR CHIEF EXECUTIVE OFFICER, AND IF HE LEAVES
THE COMPANY, WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN.
Our success in achieving our growth objectives depends upon the efforts of our
top management team including the efforts of Mr. Scott Gallagher. The loss of
Mr. Gallagher's services would negatively affect our ability to implement our
business plan, and, as a result, our financial condition, including our cash
position, ability to obtain funding and generate revenues would be harmed.
Although we intend to apply for key-man life insurance, we do not currently
maintain key life insurance policies for Mr. Gallagher.
RISKS ABOUT OUR STOCK AND THIS OFFERING
WE MAY ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WHICH WOULD REDUCE YOUR
PERCENTAGE OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
Our articles of incorporation authorizes the issuance of 25,000,000 shares of
common stock, par value $.001 per share. As of June 30th, 2003 we have
17,430,240 shares of our common stock issued and outstanding. We are also
authorized to issue 150,000 shares of our Series A 10% convertible preferred
stock of which no shares are issued and outstanding and 4,850,000
undesignated preferred shares, par value $.01 per share, of which no shares are
issued or outstanding. The future issuance of all or part of our remaining
authorized common stock may result in substantial dilution in the percentage of
our common stock held by our then existing shareholders. The issuance of common
stock for future services or acquisitions or other corporate actions may have
the effect of diluting the value of the shares held by our investors, and might
lower the trading price of our common stock.
WE AGREED TO ISSUE $412,500 OF DEBENTURES THAT WILL CONVERT INTO COMMON STOCK AT
A DISCOUNT TO THE MARKET PRICE OF OUR STOCK AT THE TIME OF CONVERSION. THE
LOWER OUR STOCK PRICE AT THE TIME OF CONVERSION, THE MORE SHARES WE WILL HAVE TO
ISSUE TO SATISFY THE CONVERSION TERMS AND THE NUMBER OF SHARES WE ISSUE COULD
CAUSE YOUR INTEREST IN OUR COMPANY TO BE DILUTED AND YOUR SHARES MAY LOSE VALUE.
We have agreed to issue $412,000 of convertible debentures. These debentures
will convert into shares of our common stock. The number of shares of common
stock we have to issue to satisfy the terms of the debentures will depend partly
on the price of our common stock at the time the debentures are converted. The
lower our stock price, the more shares we will have to issue to satisfy the
terms of the debentures. The issuance of these shares will dilute our
shareholders' interests and could cause our stock price to move lower.
It is possible the debentures may not convert all at the same time. If the
debentures convert in stages and the investor holding the debentures sells their
shares of common stock into the market, it is possible that the additional
shares sold into the market could depress our stock price by diluting our
current shareholders' interests. It is also possible other factors, such as our
financial results or the overall market performance could cause our stock price
to move lower. If our share price moves lower for any reason, we may have to
issue additional shares at future conversions of the debentures, if any.
OUR STOCK PRICE IS VOLATILE AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT A
PRICE HIGHER THAN WHAT YOU PAID.
The market for our common stock is highly volatile. Our common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations. As a result, the market price of our common stock could
decrease without regard to our operating performance. In addition, we
believe factors such as quarterly fluctuations in our financial results,
announcements of technological innovations or new products by our competitors or
us, changes in prices of our products and services or our competitors' products
and services, changes in our product mix and changes in the overall economy or
the condition of the financial markets could cause the price of our common stock
to fluctuate substantially. If our stock price fluctuates, you may not be able
to sell your shares at a price higher than what you paid.
THE LIMITED TRADING VOLUME OF OUR STOCK MAY DEPRESS THE PRICE OF OUR STOCK OR
CAUSE IT TO FLUCTUATE SIGNIFICANTLY.
There has been a limited public market for our common stock and there can be no
assurance that an active trading market for our common stock will develop. As a
result, you may not be able to sell your common stock in short time periods, or
possibly at all.
WE MUST COMPLY WITH PENNY STOCK REGULATIONS WHICH COULD EFFECT THE LIQUIDITY AND
PRICE OF OUR STOCK.
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are equity
securities with a price of less than $5.00, other than securities registered on
certain national securities exchanges or quoted on NASDAQ, provided that current
price and volume information with respect to transactions in such securities is
provided by the exchange or system. Prior to a transaction in a penny stock, a
broker-dealer is required to:
- - Deliver a standardized risk disclosure document prepared by the SEC;
- - Provides the customer with current bid and offers quotations for the penny
stock;
- - Explain the compensation of the broker-dealer and its salesperson in the
transaction;
- - Provide monthly account statements showing the market value of each penny
stock held in the customer's account;
- - Make a special written determination that the penny stock is a suitable
investment for the purchaser and receives the purchaser's; and
- - Provide a written agreement to the transaction.
These requirements may have the effect of reducing the level of trading activity
in the secondary market for our stock. Because our shares are subject to the
penny stock rules, you may find it more difficult to sell your shares.
RISKS RELATED TO OUR CELLULAR PHONE BUSINESS
WE DEPEND ON THIRD PARTY VENDORS AND IF WE ARE NOT ABLE TO SECURE
COST-EFFECTIVE PRODUCTS, WE MAY NOT BECOME OR REMAIN PROFITABLE.
Our performance depends on our ability to purchase products in
sufficient quantities at competitive prices and on our vendors' ability to make
and deliver high quality products in a cost effective, timely manner. Some of
our smaller vendors have limited resources, production capacities and limited
operating histories. We have no long-term purchase contracts or other contracts
that provide continued supply, pricing or access to new products and any vendor
or distributor could discontinue selling to us at any time. We may not be able
to acquire the products that we need in sufficient quantities or on terms that
are acceptable to us in the future. As a result, we may not become or remain
profitable.
WE EARN REVENUES BASED ON AGREEMENTS WITH CELLULAR AND SATELLITE SERVICE
PROVIDERS AND IF THE CONTRACTS ARE CANCELLED OUR REVENUES MAY DECREASE AND WE
MAY NOT BECOME PROFITABLE.
We earn revenues by providing cellular and satellite activations for major
wireless carriers such as T-Mobile, Sprint, Nextel and GlobalStar. These
agreements are partly based on geography and we signed contracts to earn
revenues from activations in Pennslyvania and Florida Our agreements which
allow for these revenues may be canceled at any time by either party. If any of
our agreements are cancelled, we will not earn activations through that carrier
which will cause our revenues to decrease. If we do not provide activations for
a broad line of carriers, our stores will not be as competitive. As a result,
our revenues may decrease and we may not become profitable.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPETE WITH OTHER COMPANIES WHICH WOULD
NEGATIVELY AFFECT OUR EARNINGS AND POSSIBLY CAUSE A DECLINE IN OUR STOCK.
We operate in a highly competitive environment. We principally compete with
Other independent retailers, privately held chains that offer a broad range
Of products and carrier owned and operated stores with superior name recognition
and brand identity than us. We believe that success in the industry is based
on maintenance of product quality, competitive pricing, delivery
efficiency, customer service and satisfaction levels, maintenance of
satisfactory dealer relationships, and the ability to anticipate technological
changes and changes in customer preferences. If we can not compete in our
markets, we will not sell a sufficient number of products to generate enough
revenues to become profitable. Additionally, our suppliers, whose products we
distribute, or major cellular phone manufacturers, may acquire, startup, and
or expand their own distribution systems to sell directly to commercial and
retail customers which would cause us to lose revenue which could ultimately
cause a decline in the value of our stock.
THE TELECOMMUNICATIONS INDUSRY IS CONSTANTLY EVOLVING AND IF THE INDUSTRY DOES
NOT REMAIN AN ATTRACTIVE INVESTMENT OPPORTUNITY FOR US WE MAY HAVE TO SHIFT OUR
BUSINESS PLAN WHICH COULD RESULT IN LOWER OR NO EARNINGS AND OUR STOCK PRICE
COULD DECLINE.
The technology that our products rely on is constantly changing. The rapid
change in technology may lead to the development of wireless telecommunications
services or alternative services that consumers prefer over traditional
cellular. As a result, we must continue to stay current with new technologies
and offer products and services that meet customer demands. It is difficult to
predict how our product line will evolve over time and what our profitability
margins will be on future products. It is also difficult to predict whether
consumers will purchase new products to take advantage of advancements in
technology. There is uncertainty as to the extent to which airtime charges and
monthly recurring charges may continue to decline. If the technology that our
products rely on changes in a way that reduces customer demand for our products
or reduces the profitability of our products, we may have to adjust our business
plan. If we adjust our business plan, our revenues and earnings may decrease
and our stock price may move lower.
WE SELL PRODUCTS THAT RELY ON THIRD PARTY NETWORKS TO OPERATE. IF ANY NETWORK
DISRUPTION OCCURS, OUR REVENUES AND EARNINGS MAY DECREASE.
The products we sell rely on the efficient and uninterrupted operation of
cellular and satelite networks, which are built and maintained by third parties
such as T-Mobile and Sprint. Any failure of these cellular or satellite systems
could cause our products to work poorly or not at all. A failure by these third
parties to maintain their cellular and satellite systems could result in lower
sales of our products which could reduce our revenues and lower our earnings.
Additionally, our customers may not understand that the failure of a cellular or
satellite system is due to a third party rather than our products and our
reputation could be harmed. If our reputation is harmed, we may have difficulty
selling our products. We may have to increase our advertising costs to repair
our reputation or educate consumers. As a result, a third party failure may
result in us failing to become profitable or, if we become profitable, we may
not be able to sustain profitability.
USE OF PROCEEDS
The shares of common stock covered by this prospectus are to be sold by the
selling shareholder who will receive all proceeds from such sales. We will not
receive any proceeds from the sale of the shares.
DETERMINATION OF OFFERING PRICE
The selling stockholders may sell shares from time to time in negotiated
transactions, brokers transactions or a combination of such methods at market
prices prevailing at the time of the sale or at negotiated prices.
DILUTION
Since this offering is being made solely by the selling stockholders, we will
receive none of the proceeds and our net tangible book value will be unaffected
by this offering. Our net tangible book value, however, will be impacted by the
common stock to be issued under our Subscription Agreement with Dutchess. The
amount of dilution will depend on the offering price and number of shares to be
issued under the Subscription Agreement. The following example shows the
dilution to new investors at an offering price of $0.26 per share.
If we assume that we issue 5,000,000 shares of common stock under the
agreement with Dutchess at an assumed offering price of 80% of $0.32 per share,
our net tangible book value as of March 30, 2003 would have been $1,041,221 or
$0.05 per share. This represents an immediate increase in net tangible book
value to existing shareholders of $0.06 per share and an immediate dilution to
new shareholders of $0.21 per share, or 81%. The following table illustrates
the per share dilution:
Assumed Public Offering Price Per Share $0.26
Net Tangible Book Value Per Share Before This Offering ($0.01)
Increase Attributable to New Investors $0.06
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Net Tangible Book Value Per Share After This Offering $0.05
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Dilution Per Share to New Shareholders $0.21
SELLING SECURITY HOLDERS
Based upon information available to us as of September 10, 2003, the following
table sets forth the name of the selling stockholder, the number of shares
owned, the number of shares registered by this prospectus and the number and
percent of outstanding shares that the selling stockholder will own after the
sale of the registered shares, assuming all of the shares are sold. The
information provided in the table and discussions below has been obtained from
the selling stockholder. The selling stockholder may have sold, transferred or
otherwise disposed of, or may sell, transfer or otherwise dispose of, at any
time or from time to time since the date on which it provided the information
regarding the shares beneficially owned, all or a portion of the shares of
common stock beneficially owned in transactions exempt from the registration
requirements of the Securities Act of 1933. As used in this prospectus,
"selling stockholder" includes donees, pledgees, transferees or other
successors- in interest selling shares received from the named selling
stockholder as a gift, pledge, distribution or other non-sale related transfer.
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated
by the Commission under the Securities Exchange Act of 1934. Unless otherwise
noted, each person or group identified possesses sole voting and investment
power with respect to the shares, subject to community property laws where
applicable.
Ownership Before and After the Offering
---------------------------------------
Number of Shares Number of Number of Shares Percent of
Name of Beneficial Beneficially Owned Shares Being Owned After Shares Owned
Owner Prior to Offering Offered Offering After Offering
Dutchess Private
Equities Fund L.P.(1) 6,600,000(2) 5,600,000 1,000,000 (3) . 4.5%
<FN>
(1) Michael Novielli and Douglas Leighton are the principals of Dutchess
Private Equities Fund, L.P.
(2) In determining this number, we have relied on a 13G filed by Mr. Novielli on April 16,
2003 regarding 1,600,000 shares owned by Dutchess and Mr. Novielli. Additionally, this
number includes shares Dutchess may acquire when it converts the debentures into common
stock. The actual amount of shares we issue on conversion will primarily depend on the
trading price of our stock at the time Dutchess converts the debentures into common stock and
how long Dutchess holds the debentures. Because we can not know how long Dutchess will
hold the debentures or what our stock price will be at the time of conversion, we have
registered 5,000,000 shares.
(3) This number assumes the selling stockholder has sold all of the shares
offered hereby prior to completion of this offering. The remaining 1,000,000 shares
are shares owned by Mr. Novielli.
PLAN OF DISTRIBUTION
We are registering the resale of up to 5,600,000 shares of common stock on
behalf of Dutchess Private Equities Fund, L.P.
Dutchess is selling 600,000 shares it acquired in a private placement from us.
Additionally, Dutchess may sell up to 5,000,000 shares pursuant to
debentures it currently owns and is obligated to purchase. We cannot predict
the exact number of shares that we will issue pursuant to the debentures held by
Dutchess. The number of shares will primarily depend on the trading price of
our stock at the time Dutchess converts the debentures into common stock and how
long Dutchess holds the debentures.
The shares of common stock may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market prices, at varying prices determined at the time of sale,
or at negotiated prices. These sales may be effected at various times in one or
more of the following transactions, or in other kinds of transactions:
- - transactions on the OTCBB or on any national securities exchange or U.S.
inter-dealer system of a registered national securities association on which our
common stock may be listed or quoted at the time of sale;
- - in the over-the-counter market;
- - in private transactions and transactions otherwise than on these exchanges
or systems or in the over-the-counter market;
- - on connection with short sales of the shares;
- - by pledge to secure debt and other obligations;
- - through the writing of options, whether the options are listed on an
options exchange or otherwise;
- - in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions in
standardized or over-the-counter options;
- - through a combination of any of the above transactions; or
- - any other method permitted by law.
The selling stockholders and their successors, including their
transferees, pledgees or donees or their successors, may sell the common stock
directly to purchasers or through underwriters, broker-dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions
from the selling stockholders or the purchasers. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be in
excess of those customary in the types of transactions involved.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 or Regulation S of the Securities Act may be sold
under Rule 144 or Regulation S rather than pursuant to this prospectus.
We entered into a registration rights agreement for the benefit of the selling
stockholders to register our common stock under applicable federal and state
securities laws.
LEGAL PROCEEDINGS
We are not aware of any legal matters that could have a material impact on our
business.
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of all of our directors and executive officers, along with
their respective positions, term of office and period such position(s) was held,
is as follows:
Name Age Position
- --------------------- ----- -----------
Scott Gallagher 36 Chairman of the Board of
Directors, Chief Executive
Officer and President
Linda Ehlen 53 Interim Chief Financial Officer
David R. Rasmussen 36 Director
W. Scott McBride 31 Director
James H. Gilligan 31 Director
All of our current directors except Mr. Gallagher have served on the Board since
February 10, 2002; Mr. Gallagher has served since January 11, 2002. All
directors hold office until the next annual meeting of stockholders and until
their successors are elected. Officers are elected to serve, subject to the
discretion of the Board of Directors, until their successors are appointed.
Biographies of Officers and Directors
Set forth below is a brief description of the background of our officers and
directors based on information provided by them to us.
SCOTT GALLAGHER has served as our Chairman, President and Chief Executive
Officer since January 11, 2002. Prior to joining us, and since 1999, Mr.
Gallagher had served as the president of About-Face Communications, LLC, a
privately held business consulting firm located in Yardley, Pennsylvania. Prior
to founding About-Face Communications, LLC, Mr. Gallagher was the chief
investment officer and a general partner with the Avalon Stock Fund, a private
hedge fund based in New York City. Prior to co-founding Avalon Stock Fund, from
1995 to 1999, Mr. Gallagher was a branch manager and founder of the Langhorne,
Pennsylvania office for Scottsdale Securities, Inc., a national brokerage firm
based in St. Louis, Missouri.
LINDA EHLEN has served as our Interim Chief Financial Officer since February 10,
2002. Prior to joining us and since 1995, Ms. Ehlen has served as the Chief
Financial Officer of Casa Comieda, Inc., a company involved in the restaurant
business. From 1981 to 1995, Ms. Ehlen was a controller for Livingston Oil
Corp. Ms. Ehlen earned her Bachelor's Degree in Accounting from Monmouth
University, Rutgers School of Government and Accounting.
DAVID R. RASMUSSEN has served on our board of directors since February 10, 2002.
He has been in the information technology field since 1992. Since 2000, Mr.
Rasmussen has served as a Project leader for ERC, Inc., a subsidiary of General
Electric. In his current position he provides IT solutions that enable business
to drive core processes and grow profitable relationships. From 1997 through
2000 Mr. Rasmussen worked as a program analyst for National Association of
Insurance Commissions. Mr. Rasmussen received a Bachelor's degree in Computer
Technology from Rockhurst University in Kansas City Missouri. Mr. Rasmussen is
a six sigma certified Green belt.
W. SCOTT MCBRIDE has served on our board of directors since February 10, 2002.
In January 2001, Mr. McBride served as a Security Information Technology
Consultant and provided a variety of services to companies and law enforcement
agencies. From January of 2000 through December of 2000, Mr. McBride worked
with the firm Datek Online Brokerage Services, as a team technology leader in
the customer service area. From 1997 to 2000 Mr. McBride attended Monmouth
University, in West Long Branch, New Jersey where he received a Master's Degree
in Education. From 1995 to 1997, Mr. McBride was a partner in a New Jersey real
estate development venture. Mr. McBride graduated from Western State College, in
Gunnison Co. in 1995 with a BA in Political and Environmental Science.
JAMES H. GILLIGAN has served on our board of directors since February 10, 2002.
Currently Mr. Gilligan is a marine fuels broker/trader for World Fuel Services,
Corp. In September 2001, Mr. Gilligan served as an independent sales consultant
for Digital Descriptor Systems, Inc., a security/biometric company. From 1996
to 2001, Mr. Gilligan worked at Kristensons-Petroleum, Inc. as a broker/trader.
Kristensons-Petroleum services ship owners, marine fuel suppliers and a network
of independent brokers and traders around the world. Mr. Gilligan earned his BA
in Liberal Arts from West Virginia University in Morgantown, West Virginia and
his Associates in Liberal Arts from Brookdale Community College, in Lincroft,
New Jersey.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, to our knowledge, certain information concerning
the beneficial ownership of our common stock as of June 1, 2003 by each
stockholder known by us to be (i) the beneficial owner of more than 5% of the
outstanding shares of common stock, (ii) each current director, (iii) each of
the executive officers named in the Summary Compensation Table who were serving
as executive officers at the end of the 2002 fiscal year and (iv) all of our
directors and current executive officers as a group:
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP OF CLASS(2)
James H. Gilligan. . . . . . . . . . . 200,000 1.1%
W. Scott McBride. . . . . . . . . . . 500,000 2.9%
David R. Rasmussen . . . . . . . . . . 75,000 *
Scott Gallagher . . . . . . . . . . . .4,302,451 24.7%
Linda Ehlen. . . . . . . . . . . . . . 222,916 1.3%
Dutchess Advisors . . . . . . . . . . .1,600,000 (3) 9.2%
312 Stuart St., 3rd Floor
Boston, MA 02116
LeRoy Landhuis . . . . . . . . . . . .6,793,471 (4) 36.8%
212 N. Wahsatch Avenue,
Suite 301
Colorado Springs, CO 80903
All directors and current executive
officers as a group (5 persons). . . .5,300,367 30.4%
* Less than 1% of outstanding shares of Common Stock.
<FN>
(1) The address of all individual directors and executive officers is c/o FTS Apparel, Inc., 1049C Oxford
Valley Rd., Levittown, PA 19057.
(2) The number of shares of common stock issued and outstanding as of September 10, 2003 was 17,430,240
shares. The calculation of percentage ownership for each listed beneficial owner is based upon the number of
shares of common stock issued and outstanding on as of September 10, 2003, plus shares of common stock
subject to options and warrants held by such person on September 10, 2003 and exercisable within 60 days
thereafter. The persons and entities named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them, except as noted below.
(3) This information is based on a 13G filed on April 16, 2003. Includes 600,000 shares owned by
Dutchess Advisors and 1,000,000 shares owned by Michael Novielli, a principal of Dutchess Advisors.
(4) Includes warrants for 1,036,000 shares of Common Stock, exercisable immediately for an exercise
price of $1.50 per share, and expiring on April 19, 2010.
DESCRIPTION OF SECURITIES
Authorized Capital
Our total number of our authorized shares of common stock is twenty five million
(25,000,000) with a par value of $.001 per share. Additionally, we are
authorized to issue 5,000,000 shares of Preferred Stock. Of this 5,000,000, we
may issue up to 150,000 shares of our 10% Convertible preferred stock, Series A,
$0.01 par value. As of September 10, 2003, we had no Series A shares issued and
outstanding and 4,850,000 undesignated preferred shares, par value $.01 per
share, of which no shares are issued or outstanding.
Common Stock
Holders of shares of common stock are entitled to one vote for each share on all
matters to be voted on by the stockholders. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to share ratably
in dividends, if any, as may be declared from time to time by our Board of
Directors in its discretion from funds legally available therefor, subject to
the rights of Preferred stockholders. Please refer to our discussion below
under "Preferred Stock." In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share pro rata all
assets remaining after payment in full of all liabilities, subject to the
rights of Preferred Stockholders. Please refer to our discussion below under
"Preferred Stock."
Holders of common stock have no preemptive rights to purchase our common stock.
There are no conversion or redemption rights or sinking fund provisions with
respect to the common stock.
Noncumulative Voting
Each holder of common stock is entitled to one vote per share on all matters on
which such stockholders are entitled to vote. Shares of common stock do not have
cumulative voting rights.
Preferred Stock
Our Articles of Incorporation, as amended, vest our Board of Directors with
authority to divide our preferred stock into series and to fix and determine the
relative rights and preferences of the shares of any such series so established
to the full extent permitted by the laws of the State of Colorado and the
Articles of Incorporation in respect to, among other things, (i) the number of
shares to constitute such series and the distinctive designations thereof; (ii)
the rate and preference of dividends, if any, the time of payment of dividends,
whether dividends are cumulative and the date from which any dividend shall
accrue; (iii) whether preferred stock may be redeemed and, if so, the redemption
price and the terms and conditions of redemption; (iv) the liquidation
preferences payable on Preferred stock in the event of involuntary or voluntary
liquidation; (v) sinking fund or other provisions, if any, for redemption or
purchase of preferred Stock; (vi) the terms and conditions by which preferred
stock may be converted, if the preferred stock of any series are issued with
the privilege of conversion; and (vii) voting rights, if any.
As of September 1, 2003, a total of 150,000 shares were designated Series A
Preferred Stock, however, none are outstanding. All Series A shares have an
issue price and preference on liquidation equal to $1.00 per share. The Series
A Preferred Shares accrue dividends at the rate of 10% per annum during the
first two years following issuance, which dividend is payable in cash and is
cumulative. During the third through fifth year in which the Series A Preferred
Shares are outstanding, the holders are entitled to 3.75% of our net profits,
Also payable in cash. We may redeem this preferred stock at any time following
notice to the holder for an amount equal to the issue price, plus any accrued
but unpaid dividends.
The Series A Preferred Shares are convertible into shares of our common stock at
the option of the holder on a one for one basis at any time up to the fifth
anniversary of the issuance. On the fifth anniversary, the Series A Preferred
Shares automatically convert into shares of our common stock. The conversion
rate is subject to adjustment in certain events, including stock splits and
dividends. Holders of our preferred stock are entitled to one vote for each
share held of record. Holders of the preferred stock vote with holders of the
common stock as one class.
Stock Options
We have a Non-Qualified Stock Option and Stock Grant Plan (the "Plan"), which we
adopted in July 1997. Under our Plan, our Board of Directors has reserved
2,500,000 shares of our common stock that may be granted at the Board of
Directors' discretion. No option may be granted after July 27, 2007 and the
maximum term of the options granted under the Plan is ten years. We currently
have options outstanding to purchase 598,000 shares of our common stock at
exercises prices ranging from $.81 per share to $2.75 per share.
Warrants
We currently have warrants outstanding to purchase an aggregate of 1,036,000
shares of our common stock at an exercise price of $1.50 per share. Such
warrants expire on April 19, 2010.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel will receive a direct or indirect interest in the small
business issuer or was a promoter, underwriter, voting trustee, director,
officer, or employee of FTS. Nor does any such expert or counsel have any
contingent based agreement with us or any other interest in or connection to us.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our Articles of Incorporation, as amended, provide that the Board of Directors
has the power to:
- - indemnify our directors, officers, employees and agents to the fullest
extent permitted by the Colorado Business Corporate Act;
- - authorize payment of expenses incurred in defending a civil or criminal
action; and
- - purchase and maintain insurance on behalf of any director, officer,
employee or agent.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, a amended ("Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
Information required by this section in disclosed under "Certain Relationships
and Related Transactions" on page 16.
DESCRIPTION OF BUSINESS
HISTORY
We organized as Full Tilt Sports, Inc. in 1997 as a Colorado corporation to
develop and market a line of young men's casual apparel. We own several U.S.
trademarks relating to that business. Effective August 23, 2000, we changed our
name to FTS Apparel, Inc. In January 2002, we experienced a change in management
after the prior management team were unable to raise the required funds to
continue in the apparel business. Effective January 11, 2002, Scott Gallagher
became our new Chairman and Chief Executive Officer and we appointed three new
directors. The new Chairman agreed to purchase most of our common stock owned by
two of the former officers and directors and additional stock from other
shareholders. In conjunction with this change in control, we narrowed
our business model of acquiring and developing cash flow positive businesses to
focus on building a chain of retail wireless locations that sell cellular and
satellite handsets and activations. FTS Wireless Inc., a wholly owned
subsidiary, was organized as a Florida corporation in February 2003.
Business
We focus on developing, investing in and acquiring cash-flow positive businesses
and viable business projects, primarily those in the wireless industry. Through
our wholly owned subsidiary FTS Wireless, Inc., we are engaged in a
targeted, strategic development strategy to consolidate the highly
fragmented cellular phone and services industry. We currently own two
retail wireless locations in the Tampa, Florida market and one in the
Philadelphia Market:
- - In February 2003, we acquired certain assets of Tampa, Florida based
"Simply Cellular, Inc."
- - In May 2003, we acquired a lease and selected assets from American
Connections of Florida, LLC, giving us a broader presence in the Tampa market.
- - In July 2003, we opened a third "FTS Wireless" location serving the
Philadelphia Market. This location will also serve as our corporate
headquarters.
We market and distribute Satellite and Cellular based wireless products and
services in three east-coast markets: Florida' Gulf Coast market, New Jersey
and Pennsylvania's Philadelphia market. In the Florida Gulf Coast market and
the Philadelphia market we sell "post-pay" wireless services and products
offered from 3 of the nation's top 6 wireless carriers T-Mobile, Sprint and
Nextel. We also have marketing rights in Florida's Gulf coast market to sell and
distribute "Pre-Pay" cellular products and services offered by Air Voice
Wireless (an "AT&T Reseller). We derive our revenues from the sale of
wireless products and commission paid to us for each new customer that signs
a cellular or satellite contract. In New Jersey and Pennsylvania we
function as a Master Agent for Air Voice wireless products, meaning we are able
to set up sub dealers and distributors in selected markets to buy Air Voice
wireless products from us.
We derive the majority of our revenue from commissions paid to us for the
activation of new "Post-Pay" cellular customers, those customers who have signed
a one or two year contract for cellular or satellite service. We derive our
"Pre-Pay" revenue primarily from the sale of cellular handsets and the sale of
Air Voice pre-pay cellular airtime cards.
We are also in the process of converting each of our current wireless locations
into free "Wi-Fi Hotspots". As of September 11, 2003, we had converted two of
our three branches to Wi-Fi Hotspots. As a free "Wi-Fi Hotspot," we offer
wireless business and retail users the ability to access the Internet using
802.11 or "Wi-Fi" technology based devices such as PDA's, Laptops and cell
phones. Each of our wireless locations also markets and sells 802.11 based
wireless network products from 'Linksys' for home or corporate use.
THE WIRELESS INDUSTRY (POST-PAID)
According to market research firm Euromonitor, in 2002 the cellular/PCS sector
totaled US$3.8 billion, and is expected to reach US$5.1 billion by 2007, a
growth of nearly 34% over 2003. In 2002 more than 50% of the U.S. population
owned a cellular phone. Out of all owners of wireless phones, 56% owned their
phone for more than a year, and 42% plan on changing their phone within the
next six months. 85% of current wireless consumers said they want a mobile phone
that can also take and exchange photographs.
Post-paid customers subscribe to a monthly service plan usually under a one or
two year contract. We believe this segment of the wireless telecommunications
industry is experiencing significant technological change. Upgrading of the
wireless networks capabilities, and the introduction of data in the form of
photos, music, and wireless Internet to the communication network has shifted
the image of wireless devices from a luxury gadget to a business and
entertainment tool. This causes uncertainty about future customer demand for
current products and services and the prices that we will be able to charge
for these services. For example, the demands for wireless data and cellular
services provided by Sprint, Nextel and T-Mobile may be affected by the
proliferation of wireless local area networks, otherwise known as Wi-Fi. To
that end we have begun to carry, sell and market Wi-Fi equipment and products
and convert our chain of retail locations into Wi-Fi "Hotspots" to attract
residential and business customers to our stores. The rapid change in
technology may lead to the development of wireless telecommunications
services or alternative services that consumers prefer over traditional
cellular. There is also uncertainty as to the extent to which airtime
charges and monthly recurring charges may continue to decline. As a result,
the future prospects of the wireless industry and other competitive services
remain uncertain.
A key element in the economic success of wireless carriers is the rate of
customer churn. Customer churn is defined as the number of clients who cancel
their contract with the carrier prior to the end of the term. Churn rates have
continued to grow in recent years due to declining cellular plan pricing. In
addition, the implementation of local number portability now scheduled
for November 2003, is likely to increase churn. Local number portability
means customers can keep their phone number when changing carriers. These
developments may have a positive effect on our cellular operations by
presenting customers with more flexibility when choosing a carrier and increase
the rate of new activations.
THE WIRELESS INDUSTRY (PRE-PAID)
Industry research firm Atlantic-ACM forecasts that the prepaid wireless segment
will grow from $4.4 billion in 2003 to $9.5 billion in 2007. One key factor in
this growth, is lack of penetration in the U.S. when compared to pre-paid market
in other parts of the world, Europe in particular. The U.S. pre-paid market
penetration is less then 10% while Europe is closer to 50% and Latin America is
closing in on 70% of the total market.
Based on these statistics and the growing trend of young adults who now use
their wireless phone as their only form of telecommunications, we feel an above
average opportunity exists for us to profit from these trends.
According to Euromonitor, "high penetration rates mean increasing costs for
customer acquisition. One untapped market is 18 to 24 year olds, who have a
higher propensity to buy phones than the population as a whole, as penetration
levels in this segment are comparatively lower."
In 2002, 18 to 24 year olds purchased 16% of all handsets, while in the
meantime, the demographic group accounted for only 10% of the total U.S.
population. The 18 to 24 group is also particular in the way they relate to
their phones. They are more likely to buy on impulse, they spend more on a
phone, and they are more likely to base purchase decisions on product appearance
compared with older groups.
Pre-paid customers do not sign a contractual agreement with a cellular
carrier. They typically buy airtime in $20 to $100 denominations at a higher per
minute rate then "Post-Pay" plans. We believe the pre-paid wireless segment
will grow substantially in the next several years in part because of the lack of
penetration in the U.S. when compared to pre-paid market in other parts of the
world, Europe in particular. The U.S. pre-paid market penetration is less then
10% while Europe closer to 50% and Latin America closing in on 70% of the total
market. Based on these statistics and the growing trend of young adults who
now use there wireless phone as their only form of telecommunications, we
feel an above average opportunity exists for us to profit from these trends.
STRATEGIC PARTNERS AND CONTRACTS
POST-PAID
We activate wireless services through agreements with companies known as
"Master Agents." A Master Agent has the ability to pay us a higher per
activation commission than we could expect to receive if we dealt directly with
the major wireless carriers. Their commission tier is based on the consolidated
monthly activations of all of their dealers. For T-Mobile and Nextel, we have a
contract in place with Fort Lauderdale based master agent American Connections
of Florida, LLC, for Sprint activations we have an agreement in place with New
York based master agent Malsha Products. These companies pay us a commission for
each new cellular customer who signs a one or two year cellular contract with
the carrier. However, if that customer deactivates their cellular service within
the 181 day period after signing the contract the commission paid to us is
charged back to our account and not paid. We have set up a reserve account of
10% of activation revenue for possible charge-backs.
PRE-PAID
We have marketing and distribution rights in three significant east coast
markets, New Jersey, Florida and Pennsylvania, to sell Air Voice Wireless (an
AT&T Reseller) pre-paid products and services. We function as a Master Agent
for Air Voice Wireless products and services in the New Jersey and Philadelphia
markets in addition to selling Air Voice Wireless products at our retail
location in the Philadelphia market. In Florida's Gulf Coast market we function
as a Master Agent in addition to selling Air Voice Wireless products at each of
our retail locations. We generate revenue primarily through the sale of
cellular handsets and airtime.
MARKETING
We depend on advertising and marketing to attract new customers. We currently
advertise in local print publications and run product related promotions. In the
future we intend to advertise in other media channels as the need develops.
INVESTMENTS
In March 2003, we acquired 30,000 shares of preferred stock in Vidyah, Inc.,
a private technology company, for $15,000 in cash. Holders of the Vidyah
preferred stock have the same voting rights as holders of the common stock. The
preferred stock has liquidation rights. The preferred stock is convertible, at
the holder's option, into an equivalent number of shares of common stock subject
to certain adjustements. Vidyah provides comprehensive technology learning
solutions, certification programs, and customized learning for a variety of
Fortune 1000 companies, including, Disney, Sony, Microsoft, IBM, Cisco Systems,
Harvard University, etc. We purchased an interest in Vidya.com because we
believe Vidyah represents an attractive investment that will increase in value
over time.
SEASONALITY
The wireless industry typically generates a higher number of subscriber
additions and handset sales in the fourth quarter of each year compared to the
remaining quarters. This is due to the use of retail distribution, which is
dependent on the holiday shopping season; timing of new products and service
introductions; and aggressive marketing and sales promotions. Therefore the
fourth quarter will more then likely generate higher sales than other quarters.
COMPETITION
The retail wireless market is very fragmented and highly competitive. In the
markets where we operate our retail locations, we experience intense
competition from other independent retailers, privately held chains that
offer a broad range of products and carrier owned and operated stores with
superior name recognition and brand identity than us. There is no one dominant
competitor. We believe that success in the industry is based on maintenance of
product quality, competitive pricing, delivery efficiency, customer service
and satisfaction levels, maintenance of satisfactory dealer relationships,
and the ability to anticipate technological changes and changes in customer
preferences. We believe our competitive advantage lies in our ability to
provide superior customer service while offering a more diverse line of hard
to find wireless products and services than our competitors such as, Wi-Fi
networking products, satellite phone, hard to come by cellular products
and a large variety of Pre-Paid cellular products.
EMPLOYEES
As of September 10, 2003, we had one full time employee at the corporate level,
our Chairman and Chief Executive Officer, Scott Gallagher. Additionally, we
employ Linda Ehlen, our Interim Chief Financial Officer and W. Scott McBride, a
Director, on a consulting basis. In connection with our cellular phones and
accessories business, we employ two full-time individuals to run our
Florida stores.
DESCRIPTION OF PROPERTY
We lease facilities located at 1049C Oxford Valley Road, Levittown Pennsylvania
19067 for use as a wireless retail location in addition to serving as our
corporate headquarters. We entered into our lease commencing on July 15, 2003
for a period of one year and currently pay a monthly rental fee of $1,000 to
occupy approximately 1,000 square feet. Our lease agreement provides for a one
year renewal option.
We operate a wireless phone business from leased facilities located at 12014
Anderson Road, Tampa, Florida, 33625. The facilities, leased to Simply Cellular,
Inc., commenced on August 1, 2001, with Life Investor Inc., Co., as landlord and
on February 14, 2003, Simply Cellular, Inc., assigned such leased facilities to
us. The monthly rent for this location is $2,000.
We assumed a lease from American Connections of Florida, LLC for our location at
8802 Rocky Creek Dr, Tampa, Florida at a rate of $985 per month. We renewed
this lease until August 2004.
We believe that our leased property for our corporate headquarters is adequate
for our current and immediately foreseeable operating needs. We may acquire
other leases or properties if our business grows according to our strategic
plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the years ended December 31, 2000 and 2001, we occupied facilities in
space leased from an affiliate of Mr. LeRoy Landhuis, our former Chairman and
Chief Executive Officer and currently the owner of greater than five percent of
our common stock. The rent paid pursuant to this arrangement for those two
years was $193,744, based on the value assigned to the stock that we issued to
Mr. Landhuis in exchange for the rent. Also during 2001 and 2000, we paid
$5,936 and $16,065 to the Landhuis Brokerage and Management Co. for consulting
services and office support services. Certain personnel in accounting and
operations of The Landhuis Brokerage and Management company were made available
to us on an as needed basis. We believe the terms of the transaction were at
least as favorable to us as we could have negotiated with a third party.
On April 19, 2000, we issued 3,594,256 shares of our common stock in a private
placement to Mr. Landhuis. The aggregate proceeds from the private placement was
$1,343,780, based upon the value of the stock as originally negotiated by the
parties, $.37 per share, consisting of $1,000,000 in cash; payment of rent
valued at $193,744 for our office facilities for a two year term; office
equipment and improvements valued at $32,192; and consulting services valued at
$117,844. Mr. Landhuis was a minority shareholder in our company prior to the
transaction. As part of that transaction, we granted a warrant to Mr. Landhuis
to acquire up to 1,036,000 shares of our common stock at an exercise price of
$1.50 per share, effective until April 19, 2010.
During the year ended December 31, 2000, Mr. Landhuis made a short term loan to
us in the amount of $65,685 for payroll, accounts payable, merchandise and
travel expenses. The loan was repaid prior to year end with interest in the
amount of $1,585. We reimbursed the Landhuis Brokerage and Management Co.
$12,621 for travel expenses incurred on our behalf. We also reimbursed Mr.
Landhuis $30,000 for legal fees incurred regarding Mr. Landhuis's acquisition of
our stock and other related transactions.
During the year ended December 31, 2001, we issued a total of 924,722 shares of
our common stock to Mr. Landhuis. Of that amount, 782,222 shares were issued for
consulting services valued at $220,000 and 142,500 shares valued at $6,672 were
issued in satisfaction of our obligation pursuant to a registration rights
agreement. We negotiated the number of shares in connection with the
registration agreement at the time the shares were issued; this amount was based
on the fair market value of the common stock at the time of the transaction and
the perceived value of the opportunity foregone by Mr. Landhuis.
In August 2002, we sold 300,000 shares of our common stock to one of our
directors, W, Scott McBride, at a purchase price of $.05 per share for an
aggregate purchase price of $15,000.
On January 5, 2002, we entered into a lease settlement agreement with
Mr.Landhuis, whereby, for forgiving a one-year lease obligation for office
space, Mr. Landhuis received the following, with an aggregated value of
$91,901: (i) all cash on hand at January 5, 2002, (ii) assignment of all
equipment and inventory remaining in the office, (iii) assignment of all
uncollected accounts receivable as of January 5, 2002, (iv) issuance of 433,333
shares of common stock, (v) accrual of interest on the remaining balance at
the rate of 12% per annum, and (vi) on June 5, 2002 settlement of any
remaining balance, estimated at $27,983 in the form of common stock at an
assigned value of $0.03 per share. During 2002, we issued 2,135,540 shares of
common stock, valued at $270,064 in relation to this settlement. The shares
were valued at their fair market value on the date an agreement was reached
to issue the shares. We believe the property lease settlement was at least
as favorable to us as we could have negotiated with a third party.
On November 12, 2002 we issued: Scott Gallagher - 833,333 shares of common stock
for services rendered to us valued at $.06 per share; Scott McBride - 125,000
shares of stock for services rendered to us valued at $.06 per share; James
Gilligan - 125,000 shares of common stock for services rendered to us valued at
$.06 per share; and Linda Ehlen 166,666 shares of common stock for services
rendered to us valued at $.06 per share.
On November 26, 2002, we issued Scott Gallagher - 387,500 shares of common stock
for services rendered to us valued at $.08 per share; Scott McBride - 75,000
shares of common stock for services rendered to us valued at $.08 per share;
James Gilligan - 75,000 shares of common stock for services rendered to us
valued at $.08 per share; David Rasmussen - 75,000 shares of common stock for
services rendered to us valued at $.08 per share; and Linda Ehlen - 56,250
shares of common stock for services rendered to us valued at $.08 per share.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has traded over the counter and has been quoted in the OTCBB
since March 18, 1999. The stock currently trades under the symbol
"FLIP.OB." Bid and ask quotations for our common shares are routinely submitted
by registered broker dealers who are members of the National Association of
Securities Dealers on the NASD Over-the-Counter Electronic Bulletin Board. These
quotations reflect inner-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The high and low bid
information for our shares for each quarter for the last two years, so far as
information is reported are as follows:
Year Ended High Low
- ------------------ ------ -----
2001
- ----
September 30 $ .25 $ .02
December 31 $ .07 $ .02
2002
- ----
March 31 $ .35 $ .06
June 30 $ .20 $ .04
September 30 $ .20 $ .05
December 31 $ .15 $ .06
2003
- ----
MARCH 31 $ .26 $ .09
JUNE 30 $ .28 $ .16
SEPTEMBER 30* $ .68 $ .23
*THROUGH September 10, 2003.
Number of Stockholders
We had approximately 149 record holders of our common stock as of
September 10, 2003.
Dividends
We have never declared dividends on our common shares and we do not anticipate
declaring any dividends in the foreseeable future. There are no existing
restrictions on the authority of the Board of Directors to declare dividends out
of funds legally available for the payment of dividends.
EXECUTIVE COMPENSATION
The following table presents a summary of the compensation paid to our Chief
Executive Officer during the last three fiscal years. Except as listed below,
there are no bonuses, other annual compensation, restricted stock awards or
stock options/SARs.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name And. Year Salary Bonus Other Long Term
Principal Annual Compensation
Position Compensation Awards
Securities All
Underlying Other
Options Compensation
Scott .
Gallagher
Chief
Executive
Officer. 2002 $ 201,000 (1) $25,000 0 0 0
LeRoy
Landhuis. 2002 $19,750 $117,844 (2) 0 0
2001 0 $226,672 (3) 0 0
2000
Mr. Landbuis is no longer our Chairman and Chief Executive Officer. Mr. Gallagher became
our Chairman and Chief Executive Officer
<FN>
(1) In 2002, we did not pay Mr. Gallagher in cash. Instead, we paid him 1,200,000
shares of stock valued at $120,000 pursuant to his employment contract, in addition
we paid him 1,145,833 shares that were converted into $75,000 and applied to his
salary and 75,000 shares as board compensation valued at $6,000. At the end of
the year Mr. Gallagher had $45,000 in unpaid accrued salary and bonuses.
(2) Represents compensation for services pursuant to a consulting agreement which
was paid in the form of 315,201 shares of common stock valued at $.373869
per share.
(3) Includes 782,222 shares of common stock valued at $220,000 pursuant to a consulting
agreement with the named executive officer and 142,500 shares of common stock
valued at $6,672 issued pursuant to a registration rights agreement with the
named executive officer.
Compensation Agreements
On January 11, 2002, we entered into an executive employment agreement with Mr.
Gallagher pursuant to which he was appointed our Chairman of the Board and Chief
Executive Officer. The agreement provides him a base salary of $100,000 per
year, the opportunity for bonuses based on our financial performance, 1,200,000
shares of our common stock and the right to participate in benefit programs
maintained for our other employees. The agreement covers the period through the
end of 2004, subject to earlier termination. The agreement provides that we may
terminate his employment with "cause," as defined therein. In the event that
his employment is terminated without cause, we must pay him for the balance of
the original term.
Directors Compensation
We compensate our directors at a quarterly rate of $2,000 payable in stock or
cash at our discretion. Additionally, each director is entitled to be
reimbursed for reasonable and necessary expenses incurred on our behalf.
Stock Option Plan
We have adopted a Non-Qualified Stock Option and Stock Grant Plan (the "Plan")
for the benefit of key personnel and others providing significant services to
us. An aggregate of 2,500,000 shares of our common stock have been reserved for
issuance under the Plan, as amended.
The Plan is administered by our Board of Directors, which selects
recipients of any stock options or grants, the number of shares and the terms
and conditions of any options or grants to key persons defined in the Plan. In
determining the value of services rendered to us for purposes of awards under
the Plan, the Board considers, among other things, such person's employment
position and relationship with us, his duties and responsibilities, ability,
productivity, length of service or association, morale, interest in our company,
recommendation by supervisors and the value of comparable services rendered by
others in the community. All options granted pursuant to the Plan are
exercisable at a price not less than the fair market value of the shares of
common stock on the date of grant.
In 2001 and 2002 no options were granted under the Plan. We have options
outstanding to purchase a total of 598,000 shares of our common stock at
exercise prices ranging from $.81 per share to $2.75 per share. Compensation
Committee Interlocks and Insider Participation. None of our directors or
executive officer serves as a member of the Board of Directors or Compensation
Committee of any entity that has one or more executive officers serving as a
member of our Board of Directors.
CAPITALIZATION
The table below sets forth our capitalization as of June 30,2003. You should
read this table in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the related notes.
JUNE 30, 2003
(in thousands)
(UNAUDITED)
----------------
DEBT:
Current portion of notes, convertible debt
and capital lease obligations. 0
================
Capital lease obligations and notes,
net of current portion 247,500
================
STOCKHOLDERS' (DEFICIT):
Common Stock, par value $0.001 per share 17,430
Common Stock Subscription 50,000
Additional paid-in capital 5,161,542
Accumulated deficit (5,481,341)
Deferred compensation (30,000)
----------------
TOTAL STOCKHOLDERS' (DEFICIT) (282,369)
----------------
TOTAL CAPITALIZATION (34,869)
================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion is intended to provide an analysis of our financial
condition and should be read in conjunction with our financial statements at
June 30, 2003 included in the Form 10-QSB and our financial statements at
December 31, 2002 included in Form 10-KSB and the notes thereto.
Overview
Historically and through the year ended December 31, 2002, we operated
exclusively in the apparel industry. In January 2002, we experienced a
management change after the prior management team was unable to raise the
required funds to continue in the apparel business. Our business now focuses on
developing and acquiring cash-flow positive businesses and viable business
projects. As of September 10,2003, we leased two wireless retail operations in
Tampa, Florida and one in Philadelphia, Pennsylvania. Due to continuing losses
from operations, the accountant which audited our financial statements for the
year ended December 31, 2002 assessed that there was substantial doubt about
our ability to continue as a going concern.
STRATEGIC PLAN
Going forward we intend to develop a profitable full service wireless company by
acquiring or developing additional retail locations in selected markets on the
East Coast namely Florida's Gulf Coast market and Pennsylvania's Philadelphia
market. Our primary wireless business consist of selling wireless handsets,
accessories, home and business Wi-Fi network equipment and related products to
retail and wholesale customers. To achieve this goal, we have embarked on a
targeted media marketing campaign focused on building brand identity of our
existing retail business. In addition were actively seeking to expand our
business by adding additional locations in our target markets to grow our
critical mass. For the next twelve months, the principal elements of our
strategy for achieving these goals are:
- - Offer state of the art and hard to find wireless products such as
BlueTooth, Data devices, and Wi-Fi products.
- - Open a minimum of 4 retail locations. As of August 2003, we owned
three retail locations. We are currently seeking our next location however, we
currently have no pending agreements to purchase or develop a forth location.
- - Sign an additional 1,000 Air Voice wholesale customers through aggressive
selling and marketing to cellular customers who prefer a "pay as you go"
cellular model. As of August 2003, we had approximately 52 Air Voice wholesale
customers.
- - Deliver superior service to our retail and wholesale customers.
- - Effectively execute a full scale marketing campaign to build brand
identity including mass print advertising in our target markets, radio
advertising, traditional mailers and a mix of Internet marketing programs.
- - Manage and implement sound processes to facilitate our growth including
and inventory monitoring and point of sale software program.
- - Continue to utilize the talent available on our active Board of Directors.
- - Achieve profitability in a reasonable time frame.
We believe our current funding commitment by Dutchess Private Equities Fund, LP
and cash flows generated from operations will allow us to fully execute the
basic components of our 12-month strategic plan outlined above. We continue to
search and evaluate other funding possibilities as we may require additional
funds if we do not achieve profitability within the 12-month time frame. We may
not be able to obtain additional financing on terms that are acceptable
to us.
RESULTS OF OPERATIONS
- -----------------------
YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001.
During the year ended December 31, 2002, we realized a net loss of $815,907
(or $0.07 per share) on no revenue, compared to a net loss of $1,168,154 ($.14
per share) on revenue of $568,953 for the year ended December 31, 2001. Revenue
during 2002 decreased by $568,953 over the prior year due primarily to our
inactivity as we ceased operating activities of our apparel business and
generated no revenue in 2002.
The cost of goods sold in 2001, was $645,824. Our cost of goods
exceeded our revenue. The write down of inventory during 2001 was necessitated
by our decision to liquidate the inventory for quick sale. Despite our efforts,
including manufacturing a portion of our products overseas, we do not believe
that we ever achieved sufficient sales to reduce our cost of goods to acceptable
levels. This fact, coupled with our general and administrative expenses, caused
us to report a net loss for each year of our existence.
General and administrative expenses decreased from 2001 to 2002, from $1,101,127
in 2001 to $811,678 in 2002. The administrative expenses in 2002 are comprised
principally of non cash stock compensation of $604,363 and accrued salaries of
$134,500. The administrative expenses in 2001 are comprised principally of non
cash stock compensation of $226,672 and salaries of $212,372. The change to
general and administrative expenses from 2001 to 2002 is primarily attributed to
the fact that in 2001 we operated a business in the apparel industry. In 2002,
we were essentially dormant as management explored strategic alternatives going
forward and ceased operating activities related to its apparel business.
Professional fees remained a significant expense in the amount of $56,478 in
2002 as compared to $49,776 in the prior fiscal year. These expenses were
incurred in connection with our need to file periodic reports with the SEC.
We anticipate that we will continue to incur losses until such time, if ever,
that we generate revenues from retail sales in an amount adequate to cover cost
of goods and expenses.
THE SIX MONTH PERIOD ENDED JUNE 30, 2003 COMPARED TO THE SIX MONTH PERIOD ENDED
JUNE 30, 2002.
Results of Operations
For the three months ended June 30, 2003, we realized a net loss of $77,740 or
($.00) per share, on revenue of $13,864. This compares to a net loss of $68,909
or ($.01) per share, on no revenues for the three months ended June 30, 2002. In
2002 we ceased operations of our apparel business and reduced our expenses to
accrued salaries, legal expenses, accounting expenses all related to our SEC
filings. Accordingly, our net loss increased by $8,831.
For the three months ended June 30, 2003 we reported $80,936 of general and
administrative expenses, compared to $68,909 for the three months ended June 30,
2002, an increase of $12,027. Our general and administrative expenses have
increased from the same period in 2002 due to increased overhead and staffing
levels of our new wireless business, specifically additional rents and employees
hired to run our new wireless business. Overhead and staffing increased when
compared to 2002 because, in 2002 we were essentially dormant other than accrued
salaries and cost's related to legal and accounting expense for our SEC filings
and in 2003 we resumed operations and hired employees. Additionally, we had
rent, utilities and other operational costs associated with the new business.
During the second quarter we realized revenue primarily from our Anderson Rd,
Tampa, Florida wireless location opened in February. We did not realize any
revenue for activations completed in June, because we do not receive commissions
until at least 45 days after the end of the month. Additionally, we opened a
second wireless location in the Hillsborough Rd. section of Tampa, Fl. at the
end of the second quarter. We expect to begin to receive activation revenue from
this location in the third quarter. After the end of the second quarter we
secured our third wireless location in Philadelphia area which we believe will
be fully operational by the end of the third quarter. We continue to develop our
wireless business on schedule and anticipate an increase in activation revenue
during the third and fourth quarters. We intend to continue to control our
expenses carefully as we go forward.
Liquidity and Capital Resources
At June 30, 2003 we had cash available of $2,341, inventory valued at
$12,480, property and equipment valued at $46,397, investments valued at
$15,000, deposits of $3,800 and current lease rights of $20,000
Our current liabilities as of June 30, 2003 of $158,825 consist mainly
Of accounts payable and accrued expenses payable to our Chairman and Chief
Executive Officer and another related party for legal services.
We believe that our continued existence is dependent upon our ability to
make our wireless operations profitable and our ability to raise additional
capital. Accordingly, the notes to our unaudited, interim financial statements
express substantial doubt about our ability to continue as a going
concern.
We are not aware of any material trend, event or capital commitment, which
would potentially adversely affect liquidity. In the event such a trend
develops, we believe that we will have sufficient funds available to satisfy
working capital needs through lines of credit and the funds expected from equity
sales.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 146, " Accounting for Costs
Associated with Exit or Disposal Activities," or FAS 146. FAS 146, which will
be effective for exit or disposal activities initiated after December 31, 2002,
is not expected to have a material impact on our results of operation, financial
position or cash flows.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure," or FAS 148, which amends FAS 123, "Accounting for Stock-Based
Compensation", transition requirements when voluntarily changing to the fair
value based method of accounting for stock-based compensation and also amends
FAS 123 disclosure requirements. FAS 148 is not expected to have a material
impact on our results of operations, financial position or cash flow.
Critical Accounting Policies and Estimates
In December, 2001, the SEC issued cautionary advice to elicit more
precise disclosure about accounting policies management believes are most
critical in portraying our financial results and in requiring management's most
difficult subjective or complex judgments. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make judgments and estimates.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Revenue Recognition
Net revenues from wholesale product sales are recognized upon the transfer of
title and risk of ownership to customers. Allowances for estimated returns,
discounts and doubtful accounts are provided when sales are recorded. Shipping
and handling costs are included in cost of sales.
We recognize revenue from advertising and promotion income as the requisite
services are provided. Revenues are recognized.
Operating revenues primarily consist of commissions for wireless service
activation's and revenues generated from handset, accessory and wireless product
sales. Activation commission revenue is realized upon receipt, however we
allocate 10% of activation revenue as deferred revenue for a six-month period
due to possible customer churn.
Goodwill and Intangible Asset Impairment
We periodically review the carrying amount of property, plant and equipment and
our identifiable intangible recognition.
Goodwill and Intangible Asset Impairment: See note 1 impairment of long lived
assets to determine whether current events or circumstances warrant adjustments
to such carrying amounts. If an impairment adjustment is deemed necessary, such
loss is measured by the amount that the carrying value of such assets exceeds
their fair value. Considerable management judgment is necessary to estimate the
fair value of assets; accordingly, actual results could vary significantly from
such estimates. Assets to be disposed of are carried at the lower of their
financial statement carrying amount or fair value less costs to sell.
FINANCIAL STATEMENTS
FTS Apparel, Inc.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
FTS Apparel, Inc.
We have audited the accompanying balance sheet of FTS Apparel, Inc. as of
December 31, 2002, and the related statements of operations, changes in
stockholders' (deficit), and cash flows for the years ended December 31, 2001
and 2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FTS Apparel, Inc. as of
December 31, 2002, and the results of its operations, and its cash flows for the
years ended December 31, 2001 and 2002, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
and has working capital and stockholder deficits. This factor raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to this matter are also discussed in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Stark Winter Schenkein & Co., LLP
Denver, Colorado
March 31, 2003
FTS APPAREL, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 219
------------
PROPERTY AND EQUIPMENT, NET. . . . . . . . . . . . . . . 3,943
------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . 900
------------
$ 5,062
============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . $ 58,219
Accounts payable - related party. . . . . . . . . . . . . 53,926
------------
Total current liabilities . . . . . . . . . . . . . . . . 112,145
------------
STOCKHOLDERS' (DEFICIT)
10% Convertible preferred stock, Series A, $0.01 par
value, 150,000 shares authorized, 50,000 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . 50,000
Preferred stock, $0.01 par value, 4,850,000 undesignated
shares authorized, none issued or outstanding.. . . . . -
Common stock, $0.001 par value, 25,000,000 shares
authorized, 15,530,240 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . 15,530
Additional paid in capital. . . . . . . . . . . . . . . . 4,956,942
Deferred Compensation. . . . . . . . . . . . . . . . . . (60,000)
Accumulated (deficit) . . . . . . . . . . . . . . . . . . (5,069,555)
------------
(107,083)
------------
$ 5,062
============
<FN>
The notes to the financial statements are an integral part of these statements
FTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2001 2002
-------------- --------------
REVENUES
Sales of merchandise . . . . . . . . . . . . . $ 568,953 $ -
Advertising and promotion income . . . . . . . 7,893 -
-------------- --------------
576,846 -
-------------- --------------
COST OF GOODS SOLD . . . . . . . . . . . . . . 645,824 -
-------------- --------------
GROSS PROFIT (LOSS). . . . . . . . . . . . . . (68,978) -
GENERAL AND ADMINISTRATIVE EXPENSES. . . . . . 1,101,127 811,674
-------------- --------------
(LOSS) FROM OPERATIONS . . . . . . . . . . . . (1,170,105) (811,674)
-------------- --------------
OTHER INCOME (EXPENSE)
Interest income . . . . . . . . . . . . . . . . 3,207 -
Interest expense. . . . . . . . . . . . . . . . (1,256) (4,233)
-------------- --------------
1,951 (4,233)
-------------- --------------
NET (LOSS). . . . . . . . . . . . . . . . . . . (1,168,154) (815,907)
PREFERRED DIVIDENDS . . . . . . . . . . . . . . - -
-------------- --------------
NET (LOSS) APPLICABLE TO COMMON STOCK . . . . . $ (1,168,154) $ (815,907)
============== ==============
PER SHARE INFORMATION:
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(BASIC AND DILUTED) . . . . . . . . . . . . . . 8,598,451 11,132,146
============== ==============
NET (LOSS) PER COMMON SHARE (BASIC AND DILUTED) $ (0.14) $ (0.07)
============== ==============
<FN>
The notes to the financial statements are an integral part of these statements
FTS APPAREL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)
YEARS ENDED DECEMBER 31, 2001 AND 2002
Number of Number of Additional Total
Preferred Common Preferred Common Paid-in Deferred Accumulated Stockholders'
Shares Shares Stock Stock Capital Compensation (Deficit) (Deficit)
--------- ---------- ----------- ------- ----------- ---------- ------------ ---------------
Balance,
December 31, 2000 . . . . 50,000 7,721,229 $ 50,000 $ 7,721 $4,028,715 $ - $(3,085,494) $ 1,000,942
Subscribed stock issued. . - 105,000 - 105 (105) -
Stock issued for services. - 819,722 - 820 225,852 - 226,672
Net (loss) for the year
ended December 31, 2001 . - - - - - - (1,168,154) (1,168,154)
--------- ---------- ----------- ------- ----------- ---------- ------------ ---------------
Balance,
December 31, 2001 . . . . 50,000 8,645,951 50,000 8,646 4,254,462 - (4,253,648) 59,460
Stock issued pursuant
to employment contract. . - 1,200,000 - 1,200 118,800 (120,000) - -
Stock issued for services - 2,648,749 - 2,649 271,651 - - 274,300
Stock issued for cash . . - 900,000 - 900 44,100 - - 45,000
Stock issued for
settlement of lease. . . - 2,135,540 - 2,135 267,929 - - 270,064
Amortization of
deferred compensation . . - - - - - 60,000 - 60,000
Net (loss) for the year
ended December 31, 2002. - - - - - - (815,907) (815,907)
--------- ---------- ----------- ------- ----------- ---------- ------------ ---------------
Balance,
December 31, 2002 . . . . 50,000 15,530,240 $ 50,000 $15,530 $4,956,942 $ (60,000) $(5,069,555) $ (107,083)
========= ========== =========== ======= =========== ========== ============ ===============
<FN>
The notes to the financial statements are an integral part of these statements
FTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2001 2002
-------------- ---------------
OPERATING ACTIVITIES
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,168,154) $ (815,907)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,822 657
Stock issued or subscribed for services,
contracts, and trade agreements. . . . . . . . . . . . . . . . . . . . . . . . . 226,672 604,364
Amortization of non-cash prepaid
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304,728 -
Write-down of inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,979 -
Loss on sale of property and equipment. . . . . . . . . . . . . . . . . . . . . . . (2,662) -
Changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,165 -
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176,718 -
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 19,682
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,782 (900)
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . (66,799) 56,118
Accounts payable - related party. . . . . . . . . . . . . . . . . . . . . . . . . . 1,971 51,569
-------------- ---------------
Net cash (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . (281,778) (84,417)
-------------- ---------------
INVESTING ACTIVITIES
Acquisition of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (4,600)
-------------- ---------------
Net cash (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . - (4,600)
-------------- ---------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . - 45,000
Preferred dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,411) -
-------------- ---------------
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . (1,411) 45,000
-------------- ---------------
Net (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (283,189) (44,017)
CASH AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,425 44,236
-------------- ---------------
CASH AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,236 $ 219
============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,256 $ 4,233
============== ===============
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ -
============== ===============
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH FINANCING AND INVESTING ACTIVITIES
Common stock issued for deferred compensation . . . . . . . . . . . . . . . . . . . $ - $ 120,000
============== ===============
<FN>
The notes to the financial statements are an integral part of these statements
FTS Apparel, Inc Notes to Financial Statements December 31, 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
FTS Apparel, Inc. (the Company) was incorporated under the laws of the State of
Colorado. The Company's primary purpose has been the development, marketing, and
distribution of clothing apparel bearing the FTS (Flip the Switch) insignia
Effective January 11, 2002, the Company experienced a change in control, in
which the Board of Directors appointed a new Chairman and Chief Executive
Officer. In connection with the change in control, the Company has decided to
explore opportunities outside of the apparel industry. However, the Company does
not anticipate abandoning their traditional business.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ significantly from those
estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considered demand
deposits and highly liquid-debt instruments purchased with a maturity of three
months or less to be cash equivalents.
INVENTORY
Inventories are stated at the lower of cost or market using the average cost
method. The Company's evaluates the net realizable value of inventory on a
quarterly basis. For the year ending December 31, 2001, the Company has recorded
a loss on write-down of inventory of $111,979, which is included in cost of
goods sold.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is being depreciated using the
straight-line method over the asset's estimated economic life, ranging from 3 to
10 years.
FINANCIAL INSTRUMENTS
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2002. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
accounts payable and accrued expenses. Fair values are assumed to approximate
carrying values for these financial instruments because they are short term in
nature, or are receivable or payable on demand, and their carrying amounts
approximate fair value.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews the carrying amount of property, plant and
equipment and its identifiable intangible assets to determine whether current
events or circumstances warrant adjustments to such carrying amounts. If an
impairment adjustment is deemed necessary, such loss is measured by the amount
that the carrying value of such assets exceeds their fair value. Considerable
management judgment is necessary to estimate the fair value of assets;
accordingly, actual results could vary significantly from such estimates. Assets
to be disposed of are carried at the lower of their financial statement carrying
amount or fair value less costs to sell.
REVENUE RECOGNITION
Net revenues from wholesale product sales are recognized upon the transfer of
title and risk of ownership to customers. Allowances for estimated returns,
discounts and doubtful accounts are provided when sales are recorded. Shipping
and handling costs are included in cost of sales.
The Company recognizes revenue from advertising and promotion income as the
requisite services are provided.
SEGMENT INFORMATION
The Company follows Statement of Financial Accounting Standards ("SFAS") 131,
"Disclosure about Segments of an Enterprise and Related Information". Certain
information is disclosed, per SFAS 131, based on the way management organizes
financial information for making operating decisions and assessing performance.
The Company currently operates in one business segment and will evaluate
additional segment disclosure requirements if it expands operations.
NET LOSS PER COMMON SHARE
The Company follows SFAS 128, "Earnings Per Share". Basic earnings (loss) per
common share calculations are determined by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings (loss) per common share calculations are determined by dividing
net income (loss) by the weighted average number of common shares and dilutive
common share equivalents outstanding. During the periods when they are
anti-dilutive, common stock equivalents, if any, are not considered in the
computation.
STOCK-BASED COMPENSATION
The Company accounts for equity instruments issued to employees for services
based on the fair value of the equity instruments issued and accounts for equity
instruments issued to other than employees based on the fair value of the
consideration received or the fair value of the equity instruments, whichever is
more reliably measurable.
The Company accounts for stock based compensation in accordance with SFAS 123,
"Accounting for Stock-Based Compensation." The provisions of SFAS 123 allow
companies to either expense the estimated fair value of stock options or to
continue to follow the intrinsic value method set forth in Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") but
disclose the pro forma effects on net income (loss) had the fair value of the
options been expensed. The Company has elected to continue to apply APB 25 in
accounting for its stock option incentive plans.
DEFERRED OFFERING COSTS
The Company defers costs associated with the raising of capital until such time
as the offering is completed, at which time the costs are charged against the
capital raised. Should the offering be terminated the costs are charged to
operations during the period when the offering is terminated. During the year
ended December 31, 2002 the Company charged an aggregate of $141,000 to
operations related to these costs for charges incurred related to a terminated
offering.
RECENT PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
148 "Accounting for Stock-Based Compensation--Transition and Disclosure-an
amendment of SFAS 123." SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation from the intrinsic value-based method of accounting
prescribed by APB 25. As allowed by SFAS 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting, and has
adopted the disclosure requirements of SFAS 123. The Company currently does not
anticipate adopting the provisions of SFAS 148.
In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS 146 provides new guidance on the recognition
of costs associated with exit or disposal activities. The standard requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of commitment to an exit or disposal
plan. SFAS 146 supercedes previous accounting guidance provided by the EITF
Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." EITF Issue No. 94-3 required recognition of costs at the date
of commitment to an exit or disposal plan. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
Early application is permitted. The adoption of SFAS 146 by the Company is not
expected to have a material impact on the Company's financial position, results
of operations, or cash flows.
In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Among other things, this statement rescinds FASB Statement No. 4, "Reporting
Gains and Losses from Extinguishment of Debt" which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As a result, the
criteria in APB Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," will now be used to
classify those gains and losses. The provisions of SFAS 145 related to the
classification of debt extinguishment are effective for years beginning after
May 15, 2002. The adoption of SFAS 145 by the Company is not expected to have a
material impact on the Company's financial position, results of operations, or
cash flows.
In November 2001, the EITF of the FASB issued EITF 01-9 "Accounting for
Consideration Given by a Vendor to a Subscriber (Including a Reseller of the
Vendor's Products)." EITF 01-9 provides guidance on when a sales incentive or
other consideration given should be a reduction of revenue or an expense and the
timing of such recognition. The guidance provided in EITF 01-9 is effective for
financial statements for interim or annual periods beginning after December 15,
2001. The adoption of EITF 01-9 by the Company did not have a material impact on
the Company's financial statements.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 provides new guidance on the
recognition of impairment losses on long-lived assets with definite lives to be
held and used or to be disposed of and also issued the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. SFAS 144 is effective for fiscal
years beginning after December 15, 2001. The adoption of SFAS 144 did not have a
material impact on the Company's financial position, results of operations, or
cash flows.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period that it is incurred if a
reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The
adoption of SFAS 143 is not expected to have a material impact on the Company's
financial position, results of operations or cash flows.
In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets,"
which provides for non-amortization of goodwill and intangible assets that have
indefinite useful lives, annual tests of impairments of those assets and interim
tests of impairment when an event occurs that more likely than not has reduced
the fair value of such assets. The statement also provides specific guidance
about how to determine and measure goodwill impairments, and requires additional
disclosure of information about goodwill and other intangible assets. The
provisions of this statement are required to be applied starting with fiscal
years beginning after December 15, 2001, and applied to all goodwill and other
intangible assets recognized in the financial statements at that date. Goodwill
and intangible assets acquired after June 30, 2001 will be subject to the
non-amortization provisions of the statement. Early application is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements had not been issued previously. The Company's
adoption of the provisions of SFAS 142 did not have a material impact on the
Company's financial position, results of operations or cash flows.
In June 2001, the FASB issued SFAS 141, "Business Combinations," which is
effective for all business combinations initiated after June 30, 2001. SFAS 141
requires companies to account for all business combinations using the purchase
method of accounting, recognize intangible assets if certain criteria are met,
as well as provide additional disclosures regarding business combinations and
allocation of purchase price. The adoption of SFAS 141 did not have a material
impact on the Company's financial position, results of operations or cash flows.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained substantial
recurring losses, aggregating $1,168,154 in 2001 and $815,907 in 2002. In
addition the Company has working capital and stockholders' deficits of $111,926
and $107,083 at December 31, 2002 and has no revenue producing operations.
The Company's ability to continue as a going concern is contingent upon its
ability to attain profitable operations and obtain capital. The Company intends
to raise capital through the sale of equity securities and/or the solicitation
of short term financing. However, the Company has no firm commitments for either
the sale of equity securities or debt financing.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Office equipment $ 4,600
Less: accumulated depreciation 657
---------
$ 3,943
During 2002 the Company entered into a lease settlement agreement (See Note 8)
in which all property and equipment held at December 31, 2001, with a net book
value of $19,682 was given to the landlord as partial satisfaction of a lease
obligation.
Depreciation expense for the years ended December 31, 2001 and 2002 was $30,063
and $657.
NOTE 4 - STOCKHOLDERS' (DEFICIT)
The Company has authorized 30,000,000 shares of stock, of which 25,000,000
shares are $.001 par value common stock and 5,000,000 shares are $.01 par value
preferred stock. The Board of Directors is authorized to divide the class of
preferred shares into series and to fix and determine the relative rights and
preferences of those shares.
In April 1998 the Company authorized the issuance of 150,000 shares of Series A
Voting Convertible Cumulative Preferred Stock for $1 per share. The Series A
Convertible Preferred Stock paid senior preferential fixed dividends at the rate
of 10% per annum until April 2000. From May 2000 through April 2003, the
dividend is calculated at 3.75% of the "net profits" of the Company and payable
annually on or before 90 days from the closing of the Company's fiscal year.
Each share of Series A Convertible Preferred Stock is convertible into one
common stock share at the option of the holder. The Series A Convertible
Preferred Stock automatically converts to common stock in April 2003.
During January 2001, the Company issued 782,222 shares of common stock related
to consulting services to be provided by the Chief Executive Officer. The value
of the consulting services is stipulated to be $220,000. Per the consulting
agreement, the shares were valued at 75% of the average bid and ask price of the
common stock on December 31, 2000, which approximates the discount that would
have been applied due to the shares being restricted per Rule 144 of the
Securities Act of 1933.
During April 2001, the Company issued 142,500 shares of common stock related to
a stock purchase agreement with the Chief Executive Officer in which the Company
agreed to issue 12,500 shares every month until a Registration Statement was
filed. The parties agreed to delay the filing of the Registration Statement and
that the total additional shares issued would be 142,500 shares (see Note 8). Of
the 142,500 shares issued during 2001, 105,000 were earned and subscribed as of
December 31, 2000. The remaining 37,500 shares were earned during the year ended
December 31, 2001.
During January 2002 the Company issued 1,200,000 shares of common stock pursuant
to the terms of an employment contract with its president. These shares were
valued at their fair market value on the date an agreement was reached to issue
the shares of $120,000. The shares have been recorded as deferred compensation
and are being amortized over the term of the employment contract of 2 years.
During 2002 $60,000 was charged to operations.
During August and September 2002 the Company issued 900,000 shares of common
stock for cash aggregating $45,000. Of the shares issued 300,000 shares were
sold to a related party at a discount from fair market value. This discount
aggregating $18,000 has been charged to operations during the year ended
December 31, 2002.
During the year ended December 31, 2002 the Company issued 2,648,749 shares of
common stock valued at $256,300 for services. These shares were valued at their
fair market value on the date an agreement was reached to issue the shares. This
charge to operations includes $126,000 of costs which had been recorded as
deferred offering costs.
During the year ended December 31, 2002 the Company issued 2,135,540 shares of
common stock valued at $270,064 related to a lease settlement (see Note 8).
These shares were valued at their fair market value on the date an agreement was
reached to issue the shares.
During September 2002 the Company filed a Form SB-2 Registration Statement with
the Securities and Exchange Commission to register 11,000,000 shares of common
stock. In conjunction with this registration statement the Company incurred
offering costs including $15,000 paid in cash and $126,000 paid in common stock.
The Company subsequently withdrew the registration statement and charged the
$141,000 in offering costs to operations.
NOTE 5 - STOCK OPTIONS
The Company has a Non-Qualified Stock Option and Stock Grant Plan (the "Plan"),
adopted in July 1997. Under the Company's Plan, the Company's Board of Directors
has reserved 2,500,000 shares that may be granted at the Board of Directors'
discretion. No option may be granted after July 27, 2007 and the maximum term of
the options granted under the Plan is ten years.
The effect of applying SFAS 123 on pro forma net (loss) as stated below is not
necessarily representative of the effects on reported net income (loss) for
future years due to, among other things, the vesting period of the stock options
and the fair value of additional stock options in future years. The Company did
not grant any stock options during 2001 and 2002.
Changes in options outstanding under the plan are summarized as follows:
Number of Weighted
Shares Average
Exercise Price
--------------- ----------------
Outstanding at December 31, 2000 1,050,000 $ 1.50
Granted
-
Exercised
-
Forfeited 452,000 1.50
------------ ------------
Outstanding at December 31, 2001
and 2002 598,000 $ 1.50
============ ============
The exercise price for all options is at or above the market value of the common
stock as of the date of grant.
The following table summarizes information about fixed price stock options:
OUTSTANDING AND
EXERCISABLE
Weighted Weighted
Average Average
Number Contractual Exercise
EXERCISE PRICES OUTSTANDING Life PRICE
--------------- ----------- ---- -----
$0.81 - $1.38 4,000 6.1 years $1.14
$1.50 - $2.75 594,000 6.7 years $1.50
NOTE 6 - STOCK WARRANTS
The following details the warrants outstanding as of December 31, 2002:
Underlying Exercise
Shares price
Warrant issued during 2000 1,036,000 $1.50
The warrant was issued to the former Chief Executive Officer of the Company. The
Warrant expires on April 19, 2010. At December 31, 2002, the Company had
reserved 1,036,000 shares of common stock for stock warrants.
NOTE 7 - INCOME TAXES
The Company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes", which requires use of the liability method. SFAS 109 provides that
deferred tax assets and liabilities are recorded based on the differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes, referred to as temporary differences. Deferred tax
assets and liabilities at the end of each period are determined using the
currently enacted tax rates applied to taxable income in the periods in which
the deferred tax assets and liabilities are expected to be settled or realized.
Reconciliation of the Federal statutory income tax rate of 34% to the effective
rate is as follows:
Federal statutory income tax rate 34.00%
State taxes, net of federal benefit 4.95%
Valuation allowance (38.95)%
----------
- %
==========
The tax effects of temporary differences and net operating losses that give rise
to significant portions of deferred tax assets and liabilities consisted of the
following:
Reconciling items:
Net operating loss carryforward $ 1,496,000
Less valuation allowance (1,496,000)
------------------
Net deferred tax asset $ -
==================
The net operating loss carry forward of approximately $4,400,000 will expire
through 2022.
The net change in valuation allowance for the year ended December 31, 2002 was
$270,000.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company was the recipient of legal services from a shareholder. The Company
incurred expenses of $24,841 and $28,000 related to these services for the years
ended December 31, 2001 and 2002 including the issuance of 100,000 shares of
common stock valued at its fair market value of $18,000 in 2002.
On April 19, 2000, the Company issued 3,594,256 shares of common stock and a
stock warrant (See Note 6) in exchange for cash, fixed assets, office rent and
consulting services. The agreement also required the Company to file a
Registration Statement for the shares issued and to issue 12,500 shares of
common stock per month until the filing of a Registration Statement. Subsequent
to the year ended December 31, 2000, the parties agreed to delay the filing of
the Registration Statement and that the total additional shares issued would be
142,500 shares (see Note 4).
On January 5, 2002, the Company entered into a lease settlement agreement with
the former President whereby, for forgiving a one-year lease obligation for
office space, the former President received the following, with an aggregated
value of $91,901: (i) all cash on hand at January 5, 2002, (ii) assignment of
all equipment and inventory remaining in the office, (iii) assignment of all
uncollected accounts receivable as of January 5, 2002, (iv) issuance of 433,333
shares of common stock, (v) accrual of interest on the remaining balance at the
rate of 12% per annum, and (vi) on June 5, 2002 settlement of any remaining
balance, estimated at $27,983 in the form of common stock at an assigned value
of $0.03 per share. During 2002 the Company issued 2,135,540 shares of common
stock in relation to this settlement (see Note 4). The difference between the
fair market value of the common stock and the assigned value was recorded as a
charge to operations.
During January 2002 the Company entered into an employment agreement with
its president. The agreement is for a period of 2 years and provides for a
base salary of $100,000 per annum plus an annual bonus of at least 25% of the
base salary. In addition, the contract provided for the issuance of 1,200,000
shares of common stock (see Note 4). During 2002 certain amounts due pursuant
to the employment contract were paid by the issuance of 1,220,833 shares
of the
Company's common stock valued its fair market value of $80,000 (see Note 4). At
December 31, 2002 $45,000 of unpaid salary is included in accounts payable -
related party.
NOTE 9 - SUBSEQUENT EVENTS
During February 2003 the Company completed a debenture offering. Pursuant to a
subscription agreement with Dutchess Private Equities Fund, LP ("Dutchess") the
Company received $212,500 from the sale of 6% secured convertible debentures.
The terms of the debentures provide for payment by February 14, 2007 with the
debentures being convertible into the Company's common stock at any time at the
lesser of (i) 80% of the average of the five lowest closing bid prices during
the 15 days prior to conversion or (ii) 100% of the average of the closing bid
prices for the 20 trading days immediately preceding the closing date. The
Company has agreed to register the shares underlying the debentures on a Form
SB-2 Registration Statement. In addition, in exchange for $12,500 in cash
Dutchess agreed to return 250,000 shares of the Company's common stock to the
Company which were purchased by Dutchess in August 2002.
During February 2003 the Company entered into an asset purchase agreement with
Simply Cellular, Inc. whereby it acquired substantially all of the assets of a
cellular service and accessories store for $70,000 in cash.
During February 2003 the Company filed a Form S-8 Registration Statement
registering 1,900,000 shares of its common stock to be used a compensate certain
consultants for services to be provided to the Company.
FTS APPAREL, INC.
BALANCE SHEET
JUNE 30, 2003
(UNAUDITED)
(Restated)
ASSETS
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,341
Accounts receivable, net. . . . . . . . . . . . . . . . . 938
Inventory . . . . . . . . . . . . . . . . . . . . . . . . 12,480
Lease rights, current portion . . . . . . . . . . . . . . 20,000
------------
Total current assets. . . . . . . . . . . . . . . . . 35,759
------------
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . . 46,397
------------
OTHER ASSETS
Investment in private entity. . . . . . . . . . . . . . . 15,000
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . 3,800
Lease rights. . . . . . . . . . . . . . . . . . . . . . . 3,000
------------
21,800
------------
$ 103,956
============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . $ 34,010
Accounts payable and accrued expenses - related parties . 104,815
------------
Total current liabilities . . . . . . . . . . . . . . 138,825
------------
CONVERTIBLE DEBENTURES. . . . . . . . . . . . . . . . . . . 247,500
------------
STOCKHOLDERS' (DEFICIT)
10% Convertible preferred stock, Series A, $0.01 par
value, 150,000 shares authorized . . . . . . . . . . .
Preferred stock, $0.01 par value, 4,850,000 undesignated
shares authorized . . . . . . . . . . . . . . . . . . .
Common stock, $0.001 par value, 25,000,000 shares
authorized, 17,430,240 shares issued and outstanding. . 17,430
Additional paid in capital. . . . . . . . . . . . . . . . 5,161,542
Common stock subscription . . . . . . . . . . . . . . . . 50,000
Deferred compensation . . . . . . . . . . . . . . . . . . (30,000)
Accumulated (deficit) . . . . . . . . . . . . . . . . . . (5,481,341)
------------
(282,369)
------------
$ 103,956
============
The notes to the financial statements are an integral part of these statements
FTS APPAREL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2003 JUNE 30, 2002
-------------------- ------------------ --------------- ---------------
(Restated) (Restated)
REVENUES
Sales. . . . . . . . . . . . . . . . . . . . . $ 13,864 $ - $ 16,313 $ -
-------------------- ------------------ --------------- ---------------
COST OF GOODS SOLD . . . . . . . . . . . . . . 9,068 - 10,167 -
-------------------- ------------------ --------------- ---------------
GROSS PROFIT . . . . . . . . . . . . . . . . . 4,796 - 6,146 -
-------------------- ------------------ --------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Settlement of lease obligation. . . . . . . . - - - 135,234
Non-cash stock compensation . . . . . . . . . - - 209,000 52,000
Purchased development costs . . . . . . . . . - - 23,500 -
Selling, general and administrative expenses. 80,936 68,909 180,232 121,135
-------------------- ------------------ --------------- ---------------
80,936 68,909 412,732 308,369
-------------------- ------------------ --------------- ---------------
(LOSS) FROM OPERATIONS . . . . . . . . . . . . (76,140) (68,909) (406,586) (308,369)
-------------------- ------------------ --------------- ---------------
OTHER INCOME (EXPENSE)
Interest expense . . . . . . . . . . . . . . . (1,600) - (3,200) -
-------------------- ------------------ --------------- ---------------
(1,600) - (3,200) -
-------------------- ------------------ --------------- ---------------
NET (LOSS). . . . . . . . . . . . . . . . . . . $ (77,740) $ (68,909) $ (409,786) $ (308,369)
==================== ================== =============== ===============
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES OUTSTANDING
(BASIC AND DILUTED) . . . . . . . . . . . . . . 17,430,240 11,149,284 17,104,826 10,643,188
==================== ================== =============== ===============
NET (LOSS) PER COMMON SHARE (BASIC AND DILUTED) $ (0.00) $ (0.01) $ (0.02) $ (0.03)
==================== ================== =============== ===============
The notes to the financial statements are an integral part of these statements
FTS APPAREL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 2003 JUNE 30, 2002
------------------ ---------------
(Restated)
OPERATING ACTIVITIES
Net cash (used in) operating activities . $ (142,424) $ (50,140)
------------------ ---------------
INVESTING ACTIVITIES
Investment in private entity. . . . . . . . (15,000) -
Acquisition of fixed assets . . . . . . . . (454) -
------------------ ---------------
Net cash (used in) investing activities . (15,454) -
------------------ ---------------
FINANCING ACTIVITIES
Operating advance from officer. . . . . . . - 6,284
Stock subscription. . . . . . . . . . . . . 10,000 -
Payment of preferred dividends. . . . . . . 150,000 -
------------------ ---------------
Net cash provided by financing activities 160,000 6,284
------------------ ---------------
Net increase (decrease) in cash . . . . . 2,122 (43,856)
CASH AT BEGINNING OF PERIOD . . . . . . . . . 219 44,236
------------------ ---------------
CASH AT END OF PERIOD . . . . . . . . . . . . $ 2,341 $ 380
================== ===============
The notes to the financial statements are an integral part of these statements
Notes to Unaudited FTS Apparel, Inc. June 30, 2003 Financial Statements
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP") for interim financial information and Item 310(b) of Regulation S-B.
They do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. These financial
statements should be read in conjunction with the audited financial statements
of the Company as of December 31, 2002 and for the two years then ended,
including notes thereto, included in the Company's Form 10-KSB.
(2) EARNINGS PER SHARE
The Company calculates net earnings (loss) per share as required by SFAS 128,
"Earnings per Share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented, common stock
equivalents were not considered, as their effect would be anti-dilutive.
(3) INVENTORY
Inventory is valued at the lower of cost or market on a first in, first out
basis and consists principally of cellular telephone equipment.
(4) GOING CONCERN
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. For the six months ended June 30, 2003 the Company
incurred a net loss of $409,786 and has working capital and stockholders'
deficits of $103,066 and $282,369, respectively, at June 30, 2003. In addition,
the Company currently has no significant revenue generating operations.
The Company's ability to continue as a going concern is contingent upon its
ability to expand its operations and secure additional financing. The Company is
pursuing financing for its operations and seeking to expand its operations.
Failure to secure such financing or expand its operations may result in the
Company not being able to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
(5) CONVERTIBLE DEBENTURES
During February 2003 the Company completed a debenture offering. Pursuant to a
subscription agreement with Dutchess Private Equities Fund, LP ("Dutchess") the
Company received $212,500 from the sale of 6% secured convertible debentures.
The terms of the debentures provide for payment by February 14, 2007 with the
debentures being convertible into the Company's common stock at any time at the
lesser of (i) 80% of the average of the five lowest closing bid prices during
the 15 days prior to conversion or (ii) 100% of the average of the closing bid
prices for the 20 trading days immediately preceding the closing date. The
Company has agreed to register the shares underlying the debentures on a Form
SB-2 Registration Statement. In addition, in exchange for $12,500 in cash
Dutchess agreed to return 250,000 shares of the Company's common stock to the
Company, which were purchased by Dutchess in August 2002. As of June 30, 2003
the amount of the debenture was increased to $247,500.
(6) STOCKHOLDERS' (DEFICIT)
In April 1998 the Company authorized the issuance of 150,000 shares of Series A
Voting Convertible Cumulative Preferred Stock for $1 per share. The Series A
Convertible Preferred Stock paid senior preferential fixed dividends at the rate
of 10% per annum until April 2000. From May 2000 through April 2003, the
dividend is calculated at 3.75% of the "net profits" of the Company and payable
annually on or before 90 days from the closing of the Company's fiscal year.
Each share of Series A Convertible Preferred Stock is convertible into one share
of common stock at the option of the holder. The Series A Convertible Preferred
Stock automatically converts to common stock in April 2003. During August 2003
the holder of the 50,000 outstanding shares of Series A Convertible Preferred
Stock submitted the shares for conversion. The shares are shown as a common
stock subscription at June 30, 2003.
During February 2003 the Company issued 1,900,000 shares of common stock for
services pursuant to a Form S-8 registration statement. The shares were valued
at their fair market value on the date it was agreed that the shares would be
issued. The non-cash stock compensation expense of $209,000 has been charged to
operations during the period.
During April 2003 the Company received $10,000 in cash as payment for a
subscription for 200,000 shares of its common stock, which have not yet been
issued.
(7) ACQUISITION OF ASSETS
During February 2003 the Company entered into an asset purchase agreement with
Simply Cellular, Inc. whereby it acquired substantially all of the assets of a
cellular service and accessories store for $70,000 in cash. The Company recorded
the fair value of the assets of $46,500 and charged the balance of $23,500 to
operations as purchased development expenses for which feasibility has not been
established and which has no alternative future uses.
In addition, during March 2003 the Company acquired 30,000 shares of preferred
stock in VidYah, Inc., a private entity, for $15,000 in cash.
(8) COMMITMENTS
During May 2003 the Company entered into an agreement to assume certain lease
rights and obligations from a third party. In exchange for the rights the
Company agreed to pay an aggregate of $25,000 and be responsible for all future
lease payments under the lease of $895 per month through August 31, 2003 with
renewal rights through August 31, 2004. In August 2003 the Company renewed the
lease to extend the term through August 31, 2004. The Company has recorded the
$25,000 as lease rights and will amortize this over the term of the lease.
(8) CORRECTION OF AN ERROR
During August 2003 the Company determined that it had not recorded $17,500 in
amounts due to a third party and $990 in rent expense related to the assumption
of a lease as described in Note 8. In addition, the Company determined that the
50,000 outstanding shares of Series A Convertible Preferred Stock should have
been cancelled and the amount classified as a common stock subscription on the
June 30, 2003 balance sheet. The accompanying financial statements have been
restated to reflect these corrections. The adjustments increased the net loss
for the six and three months ended June 30, 2003 by $(990) or $(.00) per share.
(10) SUBSEQUENT EVENT
During July 2003 the Company issued additional debentures totaling $282,500 in
funding under the terms of its $412,500 the debenture offering.
During July 2003 the Company issued 320,000 shares of its common stock pursuant
to a Form S-8 Registration Statement as follows:
For consulting services related to EDGAR filings to be rendered for a
period of 24 months - 250,000 shares
For design of website and hosting of website for a period of 12 months -
50,000 shares
For marketing services - 20,000 shares
WHERE TO FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the 1933 Act with respect to the shares offered by
this prospectus. This prospectus, filed as a part of the registration
statement, does not contain certain information contained in Part II of
the registration statement or filed as exhibits to the registration statement.
We refer you to the registration statement and exhibits which may be
inspected and copied at the Public Reference Department of the Commission, 450
5th Street, NW, Washington, D.C. 20549, at prescribed rates. You can contact
the Commission's Public Reference Department at (800) SEC-0330. The
registration statement and exhibits also are available for viewing at and
downloading from the EDGAR location within the SEC's internet website
(http://www.sec.gov).
Our common stock is registered with the SEC under section 12(g) of the
Securities Exchange Act of 1934. We file with the SEC periodic reports on Forms
10-KSB, 10-QSB and 8-K, and proxy statements, and our officers and directors
file reports of stock ownership on Forms 3, 4 and 5. These filings may be viewed
and downloaded from the SEC's internet website (http://www.sec.gov) at the EDGAR
location. Also, we will provide copies of these documents and any exhibits to
them, without charge to prospective investors upon request addressed to FTS
Apparel, Inc., 1049C Oxford Valley Rd., Levittown, PA, 19057. We intend
to send annual reports containing audited financial to the shareholders.
CHANGES IN AND DISAGREMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None of our principal independent accountants have resigned, declined to stand
for re-election or been dismissed in the last two years.
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth our expenses in connection with this registration
statement. All of these expenses are estimates, other than the fees and expenses
of legal counsel and filing fees payable to the Securities and Exchange
Commission.
Filing Fee--Securities and Exchange Commission $ 150
Legal Expenses $ 6,000
Accounting Expenses $ 2,000
Blue Sky Fees and Expenses $ 1,000
Printing Expenses $ 1,000
Miscellaneous expenses $ 1,000
---------
Total: $ 11,150
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On November 12, 2002 we issued: Scott Gallagher - 833,333 shares of common stock
for services rendered to the Company valued at $.06 per share; Scott McBride -
125,000 shares of common stock for services rendered to the Company valued at
$.06 per share and also 300,000 shares of common stock which were purchase
at $.05 per share for proceeds to the Company of $15,000; James Gilligan
- - 125,000 shares of common stock for services rendered to the Company valued
at $.06 per share; and Linda Ehlen 166,666- shares of common stock for
services rendered to the Company valued at $.06 per share. Also, on November
12, 2002, we issued 30,000 shares of common stock to two Individuals for
services rendered to the Company valued at $.06 per share.
On November 26, 2002, we issued Scott Gallagher - 387,500 shares of common stock
for services rendered to the Company valued at $.08 per share; Scott McBride -
75,000 shares of common stock for services rendered to the Company valued at
$.08 per share; James Gilligan - 75,000 shares of common stock for services
rendered to the Company valued at $.08 per share; David Rasmussen - 75,000
shares of common stock for services rendered to the Company valued at $.08 per
share; and Linda Ehlen - 56,250 shares of common stock for services rendered to
the Company valued at $.08 per share. We also issued 322,160 shares valued at
$.08 to a shareholder in connection with a prior lease settlement. In 2003,
we issued debentures convertible into common stock worth $282,500 to Dutchess
Private Equities Fund, LP.
The securities issued in the foregoing transactions were either (i) offered and
sold in reliance upon exemptions from the Securities Act of 1933 ("Securities
Act") registration requirements set forth in Sections 3(b) and 4(2) of the
Securities Act, and any regulations promulgated thereunder, relating to sales by
an issuer not involving any public offering, or (ii) in the case of certain
options to purchase shares of common stock and shares of common stock issued
upon the exercise of such options, such offers and sales were made in reliance
upon an exemption from registration under Rule 701 promulgated under Section
3(b) of the Securities Act. No underwriters were involved in the foregoing sales
of securities.
EXHIBITS
EXHIBIT INDEX
Number Description
3.1 Articles of Incorporation of the Company as filed June 30, 1997 with the
Secretary of State of the State of Colorado and included as exhibit 2.1 to the
Company's Form 10-SB dated August 24, 1998, and incorporated herein by reference
3.2 Articles of Amendment of the Articles of Incorporation of the Company as
filed April, 15, 1998 with the Secretary of State of the State of Colorado and
included as exhibit 2.2 to the Company's Form 10-SB dated August 24,1998, and
incorporated herein by reference.
3.3 Articles of Amendment of the Articles of Incorporation of the Company as
filed August 23, 2000 with the Secretary of State of the State of Colorado
included as exhibit 3.3 to our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2000, and incorporated herein by this reference.
3.4 Bylaws of the Company included as exhibit 2.3 to the Company's Form 10-SB
dated August 24, 1998, and incorporated herein by reference.
4.1 Form of Certificate for Common Shares, included as exhibit 4.1 to our
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, and
incorporated herein by this reference.
*5.1 Opinion Regarding Legality
10.1 Non-Qualified Stock Option and Stock Grant Plan, dated July 1, 1998
included as exhibit 6.3 to the Company's Form 10-SB dated August 24, 1998, and
incorporated herein by reference.
10.2 Executive Employment Agreement between the Company and Scott Gallagher
dated January 11, 2002 included as exhibit 10.1 to our Current Report on Form
8-K, dated February 11, 2002, and incorporated herein by reference.
10.3 Asset Purchase Agreement dated as of February 14, 2003 by and
between FTS Apparel, Inc. and Simply Cellular, Inc. included as exhibit 2.1
to our Current Report on Form 8-K, dated February 24 2002 and incorporated
herein by reference.
10.4 Subscription Agreement between the Company and Dutchess Private
Equities Fund, LP. included as exhibit 10.1 to our Current Report on Form 8-K,
dated February 24 2002 and incorporated herein by reference.
10.5 Debenture Agreement between the Company and Dutchess Private
Equities Fund, LP. included as exhibit 10.2 to our Current Report on Form 8-K,
dated February 24 2002 and incorporated herein by reference.
10.6 Registration Rights Agreement between the Company and Dutchess
Private Equities Fund, LP. included as exhibit 10.3 to our Current Report on
Form 8-K, dated February 24 2002 and incorporated herein by reference.
10.7 Escrow Agreement between the Company and Dutchess Private Equities
Fund, LP included as exhibit 10.4 to our Current Report on Form 8-K, dated
February 24 2002 and incorporated herein by reference.
10.8 Debenture Exchange Agreement between the Company and Dutchess Private
Equities Fund, LP included as exhibit 10.5 to our Current Report on Form 8-K,
dated February 24 2002 and incorporated herein by reference.
10.9 Addendum to the Subscription Agreement dated July 21, 2003 between the
Company and Dutchess Private Equities Fund, LP included as Exhibit 10.1 to our
Current report on form 8-K dated July 22, 2003 and incorporated herein by
reference
10.10 Amended Debenture between the Company and Dutchess Private Equities
Fund, LP. included as Exhibit 10.2 to our Current Report on Form 8-K, dated
July 22, 2003, and incorporated by reference.
10.11 Memorandum of Understanding between the Company and Malsha Imports, Inc.
dated February 28, 2003
10.12 Confidentiality and No Conflict Agreement between the Company and
American Connections, LLC dated February 28, 2003
10.13 Authorized Subcontractor Agreement between the Company and American
Connections, LLC dated February 28, 2003
10.14 Agreement between the Company and American Connections Florida, LLC
dated May 22, 2003
21.1 Subsidiaries of the Registrant
23.1 Consent of Stark Winter Schenkein & Co., LLP
- ----------------
* To be filed by amendment.
28. UNDERTAKINGS
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts of events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this First Amendment
to Registration Statement to be signed on its behalf by the undersigned, in the
State of Penslvania, on September 15 2003.
The FTS Group Inc.
By:/s/ Scott Gallagher
-------------------------------------
Scott Gallagher
Chief Executive Officer and Director
Signature Date
/s/ Scott Gallagher September 15, 2003
- ------------------------- ------------------
Scott Gallagher, Chief Executive Officer
and Director
/s/ Linda Ehlen September 15, 2003
- ------------------------- ------------------
Linda Ehlen, Interim Chief Financial Officer
/s/ * September 15, 2003
- -------------------------- ------------------
David R. Rasmussen, Director
/s/ * September 15, 2003
- ------------------------ ------------------
W. Scott McBride, Director
/s/ * September 15, 2003
- ------------------------- ------------------
James H. Gilligan, Director
* By Power of Attorney
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated March 31, 2003, relating to the financial statements of FTS
Apparel, Inc. as of December 31, 2002 and the reference to our firm as experts
in Registration Statement.
/s/ Stark Winter Schenkein & Co, LLP
- ----------------------------------------------
Stark Winter Schenkein & Co., LLP
Certified Public Accountants
September 12, 2003
Denver Colorado